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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 1, 2000
FILE NO. 333-37060
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
TERREMARK WORLDWIDE, INC.
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(Exact Name of Registrant as Specified in its Charter)
DELAWARE 52-1989122
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2601 S. Bayshore Drive
Coconut Grove, Florida 33133
(305) 856-3200
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(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
Brian K. Goodkind
Executive Vice President and Chief Operating Officer
Terremark Worldwide, Inc.
2601 S. Bayshore Drive
Coconut Grove, Florida 33133
(305) 856-3200
--------------------------------------------------------------------------------
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
COPIES OF COMMUNICATIONS TO:
Paul Berkowitz, Esq.
Sheida R. Sahandy, Esq.
Greenberg Traurig, P.A.
1221 Brickell Avenue
Miami, Florida 33131
(305) 579-0500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time or at one time after this
Registration Statement becomes effective
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Amount to be Proposed Maximum Proposed Maximum Amount of
Title of Shares to be Registered Registered Aggregate Price Per Unit(1) Aggregate Offering Price Registration Fee
-------------------------------- ------------ --------------------------- ------------------------ ----------------
<S> <C> <C> <C> <C>
Common Shares, $0.001 par value (1) 161,262,179 $3.625 $584,575,399 $154,327.91(2)
===================================================================================================================================
</TABLE>
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(1) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, and
based on the average of the high and low prices as reported on the American
Stock Exchange of the registrant's common stock on August 28, 2000.
(2) A fee in the amount of $103,270 was paid upon the initial filing of this
registration statement and accordingly, $51,058 is being paid herewith.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
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SUBJECT TO COMPLETION, DATED SEPTEMBER 1, 2000
PROSPECTUS
TERREMARK WORLDWIDE, INC.
----------------
161,262,179 SHARES OF
COMMON STOCK
----------------
The selling securityholders named on page 14 may offer for sale up to
161,262,179 shares of our common stock.
We will not receive any proceeds from the sale of the shares offered.
Our common stock is listed on the American Stock Exchange under the
symbol "TWW." On August 31, 2000, the closing price of the common stock was
$3.3125 per share.
These securities involve a high degree of risk. See "Risk Factors"
beginning on page 3 of this prospectus.
The selling securityholders may sell, directly or through one or more
underwriters, brokers, dealers or agents in one or more transactions in the
market, all or a portion of the securities offered. Any underwriters, brokers,
dealers or agents may receive compensation in the form of discounts, concessions
or commissions from the selling securityholders or commissions from purchasers
of shares for whom they may act as agent. This compensation may be in excess of
those customary in the types of transactions involved. See "Plan of
Distribution."
This prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer or sale
is not permitted.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is September __, 2000.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Cautionary Note Regarding Forward-Looking Statements..............................................................i
Prospectus Summary................................................................................................1
Risk Factors......................................................................................................3
Use of Proceeds..................................................................................................13
Selling Stockholders.............................................................................................14
Plan of Distribution.............................................................................................16
Management's Discussion and Analysis of Financial Condition and Results of Operations............................19
Legal Matters....................................................................................................28
Experts..........................................................................................................28
Where You Can Obtain Additional Information......................................................................28
Incorporation by Reference.......................................................................................28
</TABLE>
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains certain "forward-looking statements" based on
our current expectations, assumptions, and estimates about us and our industry.
These forward-looking statements involve risks and uncertainties. Words such as
"believe," "anticipate," "estimate," "expect," "intend," "plan," "will," "may,"
and other similar expressions identify forward-looking statements. In addition,
any statements that refer to expectations, projections or other
characterizations of future events or circumstances are forward-looking
statements. Our actual results could differ materially from those anticipated in
such forward-looking statements as a result of several factors more fully
described in "Risk Factors" and elsewhere in this prospectus. The
forward-looking statements made in this prospectus relate only to events as of
the date on which the statements are made. We undertake no obligation to update
publicly any forward-looking statements for any reason, even if new information
becomes available or other events occur in the future.
(i)
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PROSPECTUS SUMMARY
THE COMPANY
We are a company that provides telecom services, telecom facilities
management and real estate services. We were founded in 1982. On April 28, 2000,
our predecessor, Terremark Holdings, Inc., completed a reverse merger with
AmTec, Inc., a public company. Through an equity investment and other alliances,
we provide long distance international telecommunication services, including
telephony and data, to Asia and develop Internet Protocol (IP) fax services in
Hong Kong, Guangdong Province of the People's Republic of China and Taiwan. We
have combined our expertise in telecommunications and real estate operations by
developing and managing facilities used by large telecommunications companies
and internet service providers to house equipment and operate their businesses.
Through our 80% owned subsidiary, ColoConnection, Inc., we plan to lease certain
space within these and other telecommunications facilities for build-out and
sub-leasing to smaller carriers, internet service providers and web hosting
companies.
Our traditional commercial and mixed use development activities include
concept development, acquisition of land, project design, equity and financing
arrangement, construction, sales and leasing. Under various service agreements,
we currently manage commercial and residential property. Management activities
include operations, maintenance, leasing and brokerage services. We also develop
and sell condominium hotel units under our Fortune House concept. Fortune House
allows owners of condominium units to participate in a hotel-style rental
program while not in residence.
In connection with the merger between Terremark Holdings and AmTec, we
issued 78,539,830 shares of our common stock to Terremark Holdings shareholders.
Vistagreen Holdings (Bahamas), Ltd., Paradise Stream (Bahamas) Limited and
Moraine Investments, Inc., which we refer to in this document as the Vistagreen
Group, purchased for $28,122,925.51, at the time of the merger, 68,722,349
shares of our common stock. This amount represented the proceeds from our sale
of Terremark Centre, an office building in Miami, Florida and subsequent payment
of the promissory notes we issued to the Vistagreen Group for our purchase of
the building.
RECENT DEVELOPMENTS
On May 31, 2000, we acquired Telecom Routing Exchange Developers, Inc.,
known as "T-Rex Developers", a facilities provider to the telecommunications
industry. T-Rex Developers develops new facilities and converts existing
properties for use as Telecom Routing Exchanges. These facilities are used by
telecommunications companies to house their switches and provide leaseable space
for internet service providers, content providers, co-location companies and
other similar tenants. As part of the acquisition, we issued 8,000,000 shares of
our common stock to the founders of T-Rex Developers, Thomas M. Mulroy and
Clifford J. Preminger and their affiliates.
On June 22, 2000, we acquired Post Shell Technology Contractors, Inc.,
a 17 year old Miami company with experience as a general contractor for complex
construction, including telecommunications facilities. In connection with the
acquisition, we issued 3,000,000 shares of our common stock to Post Shell
shareholders.
On August 9, 2000, we acquired 80% of the shares of Spectrum
Telecommunications Corp., a privately held, Miami-based provider of
telecommunications services with operations in Brazil, Chile and Peru. We have
an option, until February 2002, to acquire the remaining 20% of its shares.
Using Spectrum's existing operations and network of personnel, in-country
partners, equipment and customers in Latin America, we intend to build a
telecommunications company which provides telecommunications services and
infrastructure throughout Latin America. In Latin America, we plan to provide
facilities, networking, voice over internet protocol and other value-added
services to corporate and business customers, internet service providers and
other carriers. In connection with the acquisition, we issued 3,000,000 shares
of our common stock to Spectrum shareholders.
On August 15, 2000, we acquired IXS.NET, an internet telephony service
provider with operations primarily in the People's Republic of China, Hong Kong
and Taiwan. Prior to the acquisition, we held debt of IXS.NET, which was
convertible into 25% of its equity. In connection with the acquisition, we
issued 412,500 shares of our common stock to IXS.NET shareholders.
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The shares being registered consist of:
o 78,539,830 shares of common stock which we issued to Terremark
Holdings shareholders in connection with the merger;
o 68,722,349 shares of common stock which we issued in
connection with our stock purchase agreement with the
Vistagreen Group;
o 8,000,000 shares of common stock which we issued in exchange
for the assets and assumption of liabilities of Telecom
Routing Exchange Developers, Inc.;
o 3,000,000 shares of common stock which we issued in exchange
for the outstanding shares of common stock of Post Shell
Technology Contractors, Inc.; and
o 3,000,000 shares of common stock which we issued in exchange
for 80% of the outstanding common stock of Spectrum
Telecommunications Corp.
AmTec was founded in 1982 and, since April 1995, has been engaged in
the business of making equity investments in companies developing
telecommunications networks in China. In January 1996, we sold substantially all
of the assets of ITV Communications, Inc., our former primary operating
subsidiary. On July 8, 1997, we changed our name to AmTec, Inc. from AVIC Group
International, Inc. Pursuant to the merger with Terremark Holdings completed on
April 28, 2000, we changed our name from AmTec, Inc. to Terremark Worldwide,
Inc. Our principal executive office is located at 2601 S. Bayshore Drive,
Coconut Grove, Florida 33133. Our telephone number is (305) 856-3200.
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RISK FACTORS
These securities are speculative in nature, involve a high degree of
risk, and should not be purchased by anyone who cannot afford the loss of his or
her entire investment. Prior to making an investment decision with respect to
these securities, you should carefully consider, along with the other matters
discussed in this prospectus, the risk factors set forth below. If any of the
following risks actually occur, our business, financial condition, results of
operations and prospects may be seriously harmed and the trading price of our
common stock may decline. If any of these things happen, you may lose all or
part of your investment.
RISKS RELATED TO OUR MERGER
INTEGRATION OF THE OPERATIONS OF AMTEC AND TERREMARK MAY BE DIFFICULT
AND MAY LEAD TO ADVERSE EFFECTS. Realization of the anticipated benefits of the
merger will depend in part on whether we can integrate our operations in an
efficient and effective manner. Successful integration will require combining
the companies' respective:
o management cultures;
o strategic goals;
o boards of directors; and
o business development efforts.
We may not accomplish this integration smoothly or successfully. The
diversion of the attention of management to the integration effort could cause
the interruption of, or a loss of momentum in, the activities of either or both
of the companies' businesses. Furthermore, employee morale may suffer, and we
may have difficulty retaining key managerial personnel. If we are unable to
address any of the foregoing risks, it could materially our business and impair
the value of our stock.
THE MERGER HAS RESULTED AND WILL CONTINUE TO RESULT IN COSTS OF
INTEGRATION AND TRANSACTION EXPENSES THAT COULD ADVERSELY AFFECT OUR FINANCIAL
RESULTS. If the benefits of the merger do not exceed the associated costs, our
financial results could be adversely affected. Although the total transaction
costs associated with the merger were estimated to be approximately $2 million,
actual costs may substantially exceed our estimates. In addition, unexpected
expenses associated with integrating the two companies may arise.
WE HAVE A HISTORY OF LOSSES AND MAY NOT GENERATE SUFFICIENT
REVENUE TO ACHIEVE PROFITABILITY. We had losses of $5.5 million for the three
months ended June 30, 2000. AmTec had losses of $4.6 million during the fiscal
year ended March 31, 2000 and $5.6 million for the year ended March 31, 1999.
AmTec had no revenues in 1999, 1998 or 1997. AmTec had an accumulated deficit of
$38.6 million as of March 31, 2000. Terremark incurred losses of $6.0 million
for the year ended March 31, 2000 and had net income of $624,000 during the
fiscal year ended March 31, 1999. Terremark had a retained deficit of $11.7
million as of March 31, 2000. We may not be able to generate enough revenue to
achieve profitability in the event of continued or growing losses from our
telecommunications or real estate operations.
RISKS RELATED TO OUR NEW BUSINESS MODEL
WE HAVE RECENTLY, AS A RESULT OF THE MERGER, ADDED A NEW FOCUS OF OUR
BUSINESS AND, IF WE ARE NOT SUCCESSFUL IN THIS BUSINESS, THE VALUE OF YOUR
INVESTMENT MAY DECLINE. Our primary business will now involve both
telecommunications and real estate. Because of this new focus, our results of
operations to date may not reflect future results. In addition, we will
encounter challenges and difficulties frequently encountered by early-stage
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companies in new and evolving markets. We may not successfully address any of
these challenges and the failure to do so would seriously harm our business and
operating results. These challenges include our:
o dependence on our telecommunications joint ventures;
o dependence on the growth of our new and evolving markets;
o need to expand our customer base;
o need to develop new services and projects;
o need to compete effectively;
o need to manage expanding operations;
o need to establish strategic partnership, marketing and
distribution arrangements; and
o dependence on key personnel.
In addition, because of our lack of operating history in combining
telecommunications and real estate operations, we have limited insight into
trends that may emerge and affect our business. Addressing these challenges may
require us to incur significant expenditures.
THE MARKET FOR OUR COMMON STOCK IS HIGHLY VOLATILE. The market price
and trading volume of our common stock has been volatile and may be
significantly affected by such factors as our financial performance, the market
price of our competitors' stock, or market conditions in general. The market
prices for telecommunications and real estate companies have in the past been
and can in the future be expected to be especially volatile. During the 12 month
period August 15, 1999 through August 15, 2000, our common stock has traded in a
range between $7/8 ($.88) per share and $5 15/16 ($5.94) per share. As of
August 31, 2000, the closing price of our common stock on the AMEX was $3.3125.
Price fluctuations may occur that are not necessarily related to the operating
performance of our company.
The market price of our common stock will continue to be subject to
substantial volatility as a result of many factors, including:
o regulatory changes and developments that affect either
component of our business;
o establishment of additional corporate partnerships or joint
ventures;
o economic and other external factors; and
o fluctuations in our financial results and degree of trading
liquidity in our common stock.
One or more of these factors could significantly harm our business and
decrease the price of our common stock in the public market.
OUR BUSINESS MODEL IS BASED UPON US RAISING EQUITY AND OBTAINING
ADDITIONAL FINANCING. We are not sure we will be able to raise sufficient funds
on acceptable terms or at all. Our inability to raise sufficient funds could
affect our ability to meet our debt service and other obligations and would
affect our ability to carry out our growth strategy. This would detract from our
time to market and our ability to pursue our growth strategy. We have made
substantial investments in human resources and support structures to facilitate
planned operations. Accordingly, failure to raise sufficient funds would
necessitate making adjustments to our human capital until such funds are
obtained.
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WE ARE DEPENDENT ON KEY PERSONNEL. We are highly dependent on the
services of Manuel D. Medina, our Chairman. The loss of Mr. Medina could
materially harm our business. The merger and integration of the separate
businesses, and our potential growth and expansion, are expected to place
increased demands on our management skills and resources. We cannot assure you
that we will be able to retain and attract skilled and experienced management.
The failure to attract and retain personnel could materially harm our business
and impair the price of our stock.
OUR LIMITED OPERATING AND FINANCIAL SYSTEMS RESOURCES MAY MAKE IT
DIFFICULT TO MANAGE FUTURE GROWTH. We may not be able to keep pace with a high
level of growth. Our ability to effectively manage the growth and expansion
contemplated by our growth strategy will require that we implement and improve
our operating and financial systems. We will also need to expand, train and
manage a growing base of employees in numerous markets and locations around the
world.
YOU SHOULD NOT EXPECT TO RECEIVE DIVIDENDS ON OUR COMMON STOCK. We have
not paid dividends on our common stock to date and have no plans for paying
dividends on the common stock in the foreseeable future. We have certain
obligations to pay dividends in kind, which are to be paid in common stock to
holders of the Series G preferred shares. Except for the dividends in kind which
we will pay on the shares of issued and outstanding preferred stock, and cash or
in-kind dividends which we may pay on other preferred stock that may be issued
in the future that require dividends, we intend to retain any earnings to pay
for the expansion of our business.
RISK RELATED TO ACQUISITIONS
ACQUISITIONS HAVE RESULTED AND WILL CONTINUE TO RESULT IN COSTS AND
EXPENSES THAT COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS. We intend to
continue to make targeted purchases of other companies and business that we
believe would complement or expand our existing business. Acquisitions involve a
number of risks that could adversely affect our financial results, including:
o the diversion of management's attention;
o our assumption of additional debt and contingent liabilities;
o increased amortization expenses relating to goodwill and other
intangible assets;
o the assumption of potential liabilities associated with the
businesses acquired which liabilities may exceed the amount of
indemnification available from the seller;
o difficulties in assimilating the operations, personnel,
technologies, services and products of the acquired companies;
o the financial and accounting systems utilized by the
businesses acquired may not meet our standards; and
o the inability to attract and retain qualified local
management.
There can be no assurance that we will be able to consummate future
acquisitions on satisfactory terms, if at all, or that adequate financing will
be available to us on adequate terms, if at all. Furthermore, there can be no
assurance that any of the companies or businesses we acquire will be
successfully integrated or that such acquisitions will ultimately have a
positive impact on us.
ACQUISITIONS COULD RESULT IN STOCKHOLDER DILUTION. We will likely issue
securities as a part of acquisitions we make in the future. The issuance of
these securities may have a dilutive effect on existing stockholders.
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ACQUIRED SUBSIDIARIES MAY HAVE A LIMITED ABILITY TO MEET THEIR CAPITAL
NEEDS AND MAY REQUIRE FUNDS FROM US. Our direct and indirect subsidiaries may
require capital infusions from us from time to time in order to meet their debt
obligations, current operating deficits and future investment plans. Should we
need to make such capital expenditures, our business and financial results may
be adversely affected.
ACQUIRED SUBSIDIARIES MAY NOT BE PROFITABLE. Our acquisition of direct
and indirect interests in other entities may not necessarily improve our
financial condition. The profitability of any such enterprise will depend on
many factors, including their earnings, business and tax considerations
agreements with lenders, as well as legal restrictions, such as local
restrictions relating to foreign payments and repatriation of capital.
WE COULD PAY ADDITIONAL TAXES BECAUSE OUR OPERATIONS ARE SUBJECT TO
VARIOUS FOREIGN TAXES. We structure our operations based on assumptions about
various tax laws, U.S. and international tax treaty developments, international
currency exchange and capital repatriation laws and other relevant laws of a
variety of non-U.S. jurisdictions. Taxing or other authorities might not reach
the same conclusions we reach. We could suffer adverse tax and other financial
consequences if our assumptions about these matters are incorrect or the
relevant laws are changed or modified.
DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES AND AFFILIATES
MAY BE SUBJECT TO FOREIGN TAXES, REDUCING OUR EARNINGS. Distributions of
earnings and other payments, including interest, we receive from our
subsidiaries and affiliates may be subject to withholding taxes imposed by the
jurisdictions in which these entities are formed or operating. These taxes would
reduce the amount of after-tax cash we would receive from these entities.
WE PLAN ADDITIONAL INTERNATIONAL EXPANSION WHICH MAY SUBJECT US TO
NUMEROUS RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. To be successful, we
believe we must expand our international operations. If successful, we will be
subject to a number of risks associated with international business activities.
These risks generally include:
o currency exchange rate fluctuations;
o unexpected changes in regulatory requirements;
o tariffs, export controls and other trade barriers;
o longer accounts receivable payment cycles and difficulties in
collecting accounts receivable;
o difficulties in managing and staffing international
operations;
o potentially adverse tax consequences, including restrictions
on the repatriation of earnings;
o the burdens of complying with a wide variety of foreign laws;
and
o political instability.
RISK FACTORS SPECIFIC TO OUR TELECOMMUNICATIONS BUSINESS
WE COULD BE SUED AS A RESULT OF AN UNCOMPLETED TRANSACTION. During
1998, AmTec entered into an agreement to acquire an investment in a cable
television network venture located in Hunan province, PRC, from United
International Holdings or UIH. AmTec terminated the agreement because, among
other reasons, the closing had not occurred by December 31, 1999 through no
fault of AmTec. On December 30, 1999, UIH had indicated that it was ready to
close the agreement. Should UIH seek judicial relief to require us to close, its
superior financial
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resources could limit our ability to defend ourself. We believe that AmTec had
clear rights to terminate the agreement.
OUR CUSTOMER SERVICE COULD SUFFER IF WE ARE UNABLE TO OBTAIN
SATISFACTORY SERVICES FROM LOCAL COMMUNICATIONS PROVIDERS, WHICH COULD ADVERSELY
AFFECT OUR ABILITY TO COMPETE. We depend on local carriers to provide various
communications services to us and to our customers. We have from time to time
had delays in receiving these communications services. We may not be able to
obtain these services on the scale and within the time required by us at an
affordable cost, or at all. If adequate services are not provided, customer
service could suffer as could our competitive position and financial results.
Further these service providers could become competitors in the future.
TECHNOLOGICAL ADVANCES MAY MAKE OUR TELECOMMUNICATIONS OPERATIONS
OBSOLETE. The market in the telecommunications industry is characterized by
rapidly changing technology. Technologies developed by others may render
obsolete or otherwise significantly diminish the value of the business
operations of the joint ventures in which we participate.
BECAUSE WE ARE BUILDING OUR CUSTOMER BASE AND EXPANDING AND BUILDING
NETWORKS, WE ARE PARTICULARLY VULNERABLE TO THE IMPACT OF DAMAGE TO OUR NETWORKS
AND SYSTEM FAILURES. To market our services to business customers and other high
volume users our network infrastructure will need to provide a high level of
reliability, capacity and security. Our networks, many of which are being
expanded or newly constructed, are subject to physical damage, power loss,
capacity limitations, software defects and security breaches. Service
interruptions or other defects could impede our ability to attract and retain
customers.
WE NEED TO OBTAIN ADDITIONAL LICENSES AND APPROVALS IN ORDER TO EXPAND
OUR SERVICES AND ENTER NEW MARKETS. We must from time to time obtain additional
licenses and approvals from governmental agencies in order to provide our
services. Because many of our markets have been recently deregulated, there may
be particular difficulties or delays in obtaining them. If we encounter
difficulties or delays in obtaining licenses, our ability to provide new
services and expand into new markets could be adversely affected.
CHINA TELECOMMUNICATIONS REGULATIONS COULD IMPACT OUR BUSINESS. Chinese
laws and regulations have prohibited foreign investors and foreign invested
enterprises from owning or operating telecommunication networks in China. Since
the fall of 1998, the Chinese government has taken a number of actions which
have changed the legal environment in which we are operating in China:
o preparing a new telecommunications law not yet issued; and
o seeking admission to the World Trade Organization.
The result of these actions is difficult to predict since negotiations
with relevant parties are ongoing and political uncertainties exist in China.
Among other possibilities:
o We may be unable to convert returns of or on its investment it
receives, if any, to U.S. currency or repatriate funds from
China;
o the new telecommunications law may facilitate entry into
telecommunications businesses in China by national and
international entities and increase competition; and
o WTO accession will require China to abide by certain rules
which assures foreign investors minimum direct ownership
percentages in licensed telecommunications operators and may
foster competition from Chinese or foreign telecommunications
operators or investors.
The result of the foregoing may have a material adverse effect on us.
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A number of regulatory bodies in China seek to control and regulate the
Internet; most notably, the Ministry of Information Industry, which combines the
former Ministry of Posts & Telecommunications, Ministry of Electronics Industry
and Ministry of Radio, Film and Television, and regulates the telecommunications
and information industries. In addition, China Telecom, under direct authority
of the Ministry of Information and Industry, has significant control over the
development of the Internet infrastructure in China as it owns China's largest
Internet backbone and operates telecoms and datacomms services.
INTERNET REGULATION IN CHINA IS UNCLEAR, AND NO SINGLE REGULATORY ACT
HAS BEEN PROMULGATED TO GOVERN THE INTERNET IN CHINA. Consequently, our ability
to operate or invest in Internet-based services is unclear. To date, Chinese
Internet operating licenses have been available to Chinese companies only.
Through our joint venture with Fusion Communications and our ownership of
IXS.NET, we seek to participate in Internet-based businesses in China. If the
Chinese government liberalizes its policy toward foreign participation in
Internet operating licenses, it could substantially increase competition in the
markets where our strategic partners operate. The Chinese government, while
currently open to joint ventures, could at any time restrict operations or
expropriate foreign participants' assets in China. Furthermore, China Telecom
has challenged the ability of Internet service providers to provide Internet
telephone and fax services. This action could have materially adverse
consequences to the company's business and financial condition.
On November 15, 1999, the United States and China reached a trade
agreement whereby China agreed to reduce tariffs on various industrial and
agricultural products and lift many of the barriers that prevent US companies
from doing business in China. Under the agreement, China agreed, among other
things to permit:
o foreign entities to invest in Chinese Internet businesses; and
o foreign entities to own up to 49% of Chinese telephone service
providers, which would increase up to 50% in two years.
The United States agreed that in return for these concessions, that it
would support China's entry into the World Trade Organization, the group that
sets the rules for international commerce. Entry into the WTO would give China
access to international economic protections, such as protection from unfair
trade practices abroad, but also would impose a body of rules on China's
internal economy and put China under the jurisdiction of international courts
that enforce the World Trade Organization's rules. The agreement is subject to
approval by the United States Congress. We cannot predict the impact of the new
trade agreement between China and the United States.
China also must negotiate trade agreements with each of the European
Union and Japan in order to gain the support of these groups to China's entry
into the WTO.
It is impossible to predict how entry into the World Trade Organization
would affect China's economy or the manner in which it conducts business
domestically and internationally.
POLITICAL RISKS IN CHINA MAY ADVERSELY AFFECT OUR BUSINESS OPERATIONS.
China has been a socialist state since 1949 and is controlled by the Communist
Party of China. Changes in the political leadership of China may have a
significant effect on laws and policies related to the current economic reforms
program. These changes may also affect other policies affecting business and the
general political, economic and social environment in China, including the
introduction of measures to control inflation, changes in the rate or method of
taxation and imposition of additional restrictions on currency conversion,
remittances abroad and foreign investment. These effects could substantially
impair our business, profits or prospects in China. In addition, economic
reforms and growth in China have been more successful in some provinces than in
others. The continuation or increases of such disparities could affect the
political or social stability of China.
CHANGES IN GOVERNMENTAL DEREGULATION IN LATIN AMERICA COULD ADVERSELY
AFFECT OUR OPERATIONS AND GROWTH BY RESTRICTING OUR ABILITY TO OFFER EXISTING
AND PLANNED COMMUNICATIONS SERVICES. We have largely based our growth strategy
in Latin America upon our expectation that deregulation of the communications
markets will continue in the countries where we operate. These countries may not
proceed with deregulation on schedule or may stop entirely or reverse the trend
towards deregulation. This could adversely affect our operations and growth by
restricting our ability to offer existing and planned communications services.
Incumbent providers, trade unions and others may resist legislation directed
toward deregulation. In addition, national and local laws and regulations differ
significantly among the countries in which we operate. How these laws and
regulations are interpreted and enforced as well as changes in laws or
regulations and judicial intervention could limit our ability to provide some of
our existing and planned communications services.
WE HAVE LIMITED OPERATING CONTROL IN OUR JOINT VENTURE. Because we do
not have majority voting rights in one of our joint ventures, we cannot
completely control or direct the operation of that entity. In addition,
8
<PAGE> 12
our ability to derive revenues from each joint venture depends upon our ability
to receive distributions, so it is possible that we may receive little or no
revenue from that joint venture.
THE SPECIAL ECONOMIC AND POLITICAL RISKS OF CONDUCTING OPERATIONS IN
LATIN AMERICA COULD ADVERSELY AFFECT OUR ABILITY TO INCREASE REVENUES IN
RESPONSE TO INCREASES IN INFLATION RATES OR CURRENCY DEVALUATIONS WHERE WE
OPERATE. Because a significant portion of our operations are expected to be in
Latin America, we will be subject to significant economic, political and social
instability and other risks not typical of investments in businesses conducted
in the United States. During the past several years, many countries where we now
operate or may operate have had high inflation, uneven economic growth rates and
political instability. Also many of these countries have economies in various
stages of development or structural reform and their local economies have
fluctuated. We may not be able to mitigate the effect of inflation on our
operations in these countries by price increases, even over the long-term. In
addition, to the extent these factors affect the ability of subscribers to pay
for our services, the growth of revenues from services offered in these markets
could be limited.
In addition to inflation, many of these countries have had significant
volatility in currency exchange rates. We would also be adversely affected if
currency exchange rates change in ways adverse to us or if currency controls are
imposed.
LABOR REGULATIONS AND STRONG LABOR UNIONS IN LATIN AMERICA MAY INCREASE
OUR OPERATING AND LABOR COSTS. Labor regulations in Latin America are generally
more favorable to employees than they are in the United States. Most Latin
American countries also require higher rates of mandatory social security and
similar contributions by employers than the United States. In addition, labor
unions in most Latin American countries are considered to be strong and
influential. If our operations become unionized, we could experience strikes or
other conflicts with labor unions or personnel that increase our operating and
labor costs.
INCREASING COMPETITION IN THE COMMUNICATIONS INDUSTRY IN CHINA AND
LATIN AMERICA AND OUR LIMITED COMPETITIVE STANDING AND SIZE COULD ADVERSELY
AFFECT OUR ABILITY TO GENERATE REVENUES, GAIN SIGNIFICANT MARKET SHARE AND
ATTRACT NEW CUSTOMERS FROM EXISTING PROVIDERS. The communications industry in
China and Latin America is becoming increasingly competitive due in part to
recent privatizations, deregulation and a related increase in the number and
size of new competitors. Moreover, because we have a limited operating history,
we have a limited competitive standing.
We will compete with several other service providers in each of our
markets. Competitors include global alliances of some of the world's largest
communications carriers, incumbent communications providers with large customer
bases, wireless telephone companies and satellite-based communications carriers.
9
<PAGE> 13
Other existing and potential competitors include cable television
companies, railway companies, utilities and other entities with rights-of-way
and large end users which operate private networks. Competition has been
intensifying and we believe it is likely to continue to intensify as the number
of new market entrants increases.
As a result, we may not be able to generate adequate revenues or gain a
substantial share of the markets we intend to serve. We also may have difficulty
attracting new customers from established providers.
The Internet service provider market is highly competitive in China.
There are five national ISPs owned and operated by the national government.
There are over 150 private ISPs licensed to operate in various provinces. Thus,
privately owned ISPs often compete with government owned or affiliated ISPs. The
playing field is unequal, with government-affiliated ISPs having access to
subsidized dial up lines, leased lines and Internet bandwidth. Our strategic
partners may face severe competition as the Internet develops in China.
WE NEED TO ATTRACT NEW CUSTOMERS AND THERE MUST BE SUBSTANTIAL GROWTH
IN THE OVERALL LEVEL OF DEMAND IN CHINA AND LATIN AMERICA FOR OUR SERVICES IF WE
ARE TO GENERATE PROFITS. Our success will depend heavily on the extent to which
prospective subscribers use our services. Attracting new customers is
particularly important to our growth strategy. In addition, for us to succeed,
the overall level of demand for the type of services we offer by businesses in
our target markets in China and Latin America must increase significantly. Also,
there must be strong demand for services that we introduce in the future.
WE MUST KEEP PACE WITH RAPID INDUSTRY AND TECHNOLOGICAL CHANGE TO
ATTRACT AND MAINTAIN CUSTOMERS AND COMPETE EFFECTIVELY. The communications
industry, particularly in China and Latin America, is changing rapidly. This is
due to factors such as:
o deregulation;
o privatization;
o technological improvements;
o expansion of communications infrastructure; and
o the globalization of the world's economies and liberalization
of trade.
Our success depends, in part, upon how well we anticipate and adapt to
change and whether we offer our customers attractive services. If we cannot do
so, it will be more difficult for us to attract and retain customers and compete
effectively.
RISK FACTORS SPECIFIC TO OUR REAL ESTATE BUSINESS
ECONOMIC, INTEREST RATES AND OTHER CONDITIONS GREATLY IMPACT THE REAL
ESTATE MARKET. It is possible that our real estate operations will not generate
income sufficient to meet our operating expenses or will generate income and
capital appreciation, if any, at a rate less than that anticipated or available
through comparable real estate or other investments.
The real estate industry is cyclical and affected by changes in general
and local economic and other conditions including employment levels, demographic
considerations, availability of financing, interest rate levels, consumer
confidence and real estate demand. In addition, developers are subject to
various risks, many of them outside their control including competitive
overbuilding, availability and cost of property, materials and labor, adverse
weather conditions which can cause delays in construction schedules, cost
overruns, changes in government regulations pertaining to building standards or
environmental matters, increases in real estate taxes and other local government
fees and acts of God, such as hurricanes and floods.
We cannot predict whether interest rates will be at levels attractive
to prospective tenants or buyers and any increase in interest rates could affect
our business adversely.
UP FRONT CASH REQUIREMENTS MAY CREATE CASH FLOW PROBLEMS. We develop
real estate projects. Acquiring land and committing the financial and managerial
resources to develop such projects involve significant risks.
10
<PAGE> 14
Before a development generates any revenue, material expenditures are required
for items such as acquiring land, professional fees, construction, financing
costs, sales and marketing.
OUR REAL ESTATE INVESTMENTS ARE HIGHLY LEVERAGED AND WE MAY NOT BE ABLE
TO MAKE THE DEBT SERVICE PAYMENTS. Our ability to make debt service payments in
the future will be dependent on our operating results, which are subject to
financial, economic and other factors affecting it that are beyond our control.
We may acquire real estate in the future through debt financing. The degree to
which we are leveraged could have an adverse impact on us, including:
o increased vulnerability to adverse general economic and market
conditions;
o impaired ability to expand and to respond to increased
competition;
o impaired ability to obtain additional financing for future
working capital, capital expenditures, general corporate or
other purposes; and
o significant portions of cash provided by operating activities
must be used for the payment of debt obligations, thereby
reducing funds available for operations and future business
opportunities.
A SIGNIFICANT PORTION OF OUR REAL ESTATE BUSINESS' FINANCING COULD BE
STRUCTURED AS BALLOON PAYMENTS, WHICH MAY BE HARDER FOR US TO PAY OFF. Most of
our real estate project financings provide for the repayment of a significant
part of the loan at maturity. These financings involve greater risks than
financings structured such that the principal amount is amortized over the term
of the loan because our ability to repay the outstanding principal amount at
maturity may depend on our ability to obtain adequate refinancing or dispose of
the assets before maturity, which in turn depend upon economic conditions in
general and the value of the underlying properties in particular. Further, a
shrinkage in value of the underlying property held as collateral for loans could
result in a loss of the property by us through foreclosure and result in a
possible deficiency judgment for the difference between the amount of the
underlying debt and value of the collateral.
INCREASES IN VARIABLE MORTGAGE RATES COULD NEGATIVELY IMPACT US. Most
of our real estate business' borrowings are pursuant to agreements which provide
for the periodic adjustment of the interest rate to be consistent with
prevailing interest rates. An increase in prevailing interest rates would result
in higher borrowing costs to us and, therefore, a reduction in income or, in
extreme cases, project failure.
MANAGEMENT CONTRACTS ARE GENERALLY CANCELLABLE ON SHORT NOTICE. In the
real estate industry, third party contracts to manage buildings are generally
subject to cancellation on 30 to 90 days notice. If our property management
contracts with third parties were cancelled, there could be a material adverse
impact on our results of operations.
OUR GEOGRAPHIC CONCENTRATION EXPOSES US TO CERTAIN RISKS. Our real
estate operations are situated primarily in South Florida. For the fiscal year
ended March 31, 2000, all of Terremark's revenue and operating income were
derived from operations in South Florida. Adverse general economic conditions in
South Florida could have a material adverse impact on our operations. Although
our planned expansion into other geographic areas may reduce our exposure to
adverse developments in the South Florida economy, we may become subject to
similar risks in new locations. In addition, as development of real estate is
subject to local laws, we may not be in a position to fully comply with them
which would adversely impact our business.
THE OCCURRENCE OF UNINSURED LOSSES COULD HAVE A MATERIAL ADVERSE EFFECT
ON OUR FINANCIAL CONDITION. We carry comprehensive insurance with respect to our
properties and operations. However, there are certain types of losses, generally
of a catastrophic nature, such as significant construction defects, hurricanes,
floods or war, which are either uninsurable or not economically insurable. In
the event of such a disaster, we could lose both our capital investment in
certain properties and the anticipated profits from such properties. In
addition, we may have liability for services it renders to others if those
services are negligently provided and losses are sustained. We carry
11
<PAGE> 15
errors and omissions insurance for some of its service operations, but for some
other types of losses (e.g. general contracting), that insurance is either not
available or not economical.
WE MAY NOT BE ABLE TO COMPETE IN THE HIGHLY COMPETITIVE REAL ESTATE
MARKET. The real estate development industry is highly competitive and
fragmented.
We compete in the acquisition of property with many other entities
engaged in real estate investment activities, including real estate investment
trusts and insurance companies, many of which have greater assets and financial
resources than we do. There may be intense competition in obtaining properties
of the type in which we intend to invest. The number of entities and the amount
of funds available for investment in properties of a type suitable for
investment by us may increase, resulting in increased competition for those
investments. Competition among purchasers of real property may result in
increases in the prices paid for real property investments.
In our construction and development activities, we compete for buyers
and tenants. We face similar intense competition in our brokerage, property
management and advisory and consulting businesses from well established local
and national organizations which specialize in the provision of those services.
GOVERNMENTAL REGULATION MAY ADVERSELY IMPACT OUR BUSINESS. We are
subject to a variety of federal, state and local statutes, ordinances, rules and
regulations concerning land use. Land use and zoning laws can vary greatly and
may result in delays, cause us to incur substantial compliance and other costs
and prohibit or severely restrict development in certain regions or areas, any
of which could have an adverse effect on our business and results of operations.
In developing real estate, we must obtain the approval of numerous government
authorities regulating such matters as permitted land uses and levels of density
and the installation of utility services such as water and waste disposal.
Several authorities in Florida and other states have imposed impact fees as a
means of defraying the cost of providing certain governmental services to
developing areas and the amount of these fees has increased significantly during
recent years. Many state laws require the use of specific construction materials
which reduce the need for energy-consuming heating and cooling systems. Also,
local governments, at times, declare moratoriums on the issuance of building
permits and impose other restrictions for various reasons, including but not
limited to, when sewage treatment facilities and other public facilities do not
reach minimum standards.
TO VARYING DEGREES, CERTAIN PERMITS AND APPROVALS WILL BE REQUIRED TO
COMPLETE THE RESIDENTIAL DEVELOPMENTS CURRENTLY BEING PLANNED BY US. Our ability
to obtain necessary approvals and permits for these projects is often beyond our
control, and could restrict or prevent the development of otherwise desirable
property. The length of time necessary to obtain permits and approvals increases
the carrying costs of unimproved property acquired for the purpose of
development and construction. In addition, the continued effectiveness of
permits already granted is subject to factors such as changes in policies, rules
and regulations and their interpretation and application.
LIABILITY RELATING TO ENVIRONMENTAL CONTAMINATION MAY ADVERSELY IMPACT
OUR BUSINESS. Applicable laws impose strict liability on property owners to
remediate environmental contamination found on land they own. This means that we
can be liable regardless of how or when the contamination occurred, even if the
contamination occurred before our purchase of such land. As an owner of real
estate, we may be held responsible for remediation of this kind. Although we
engage environmental engineers to evaluate real estate before a purchase, such
evaluations are not capable of detecting all contamination. Insurance for these
risks is either not available or not economical.
WE MAY FACE SUBSTANTIAL LIABILITIES FOR INDEMNIFICATION OF TAX
OBLIGATIONS IF WE ARE OR BECOME A UNITED STATES REAL PROPERTY HOLDING
CORPORATION. If our company was at the time of the merger or becomes a United
States real property holding corporation as defined in Section 897(c)(2) of the
U.S. Internal Revenue Code, while the Vistagreen Group continues to hold at
least one percent of our common stock registered hereunder on its behalf, then
we could be liable to the Vistagreen Group for any U.S. tax liability the
Vistagreen Group incurs on dispositions of our common stock. The amount of this
tax liability would depend on the amount of any gains the Vistagreen Group
recognizes on dispositions of our common stock and on the effective U.S. tax
rate payable by the Vistagreen Group at the time it recognizes those gains.
12
<PAGE> 16
USE OF PROCEEDS
We will not receive any proceeds from the sale by the selling
stockholders of any of the shares offered hereby. We will pay all of the costs
of this offering.
13
<PAGE> 17
SELLING STOCKHOLDERS
The following table sets forth information with respect to the selling
stockholders as of August 15, 2000. Except as otherwise disclosed, the selling
stockholders do not have and within the past three years have not had any
position, office or other material relationship with us or any of our
predecessors or affiliates. Because the selling stockholders may offer all or
some portion of the shares pursuant to this prospectus, we cannot give an
estimate as to the number of shares that the selling stockholders will hold upon
termination of any of these sales. In addition, the selling stockholders
identified below may have sold, transferred or otherwise disposed of all or a
portion of their shares since the date on which it provided the information to
us regarding its shares, in transactions exempt from the registration
requirements of the Securities Act.
<TABLE>
<CAPTION>
Percentage of
Number of Shares Shares
Number of Shares Beneficially Owned Beneficially
Beneficially Number of Shares Offered After Owned After
Selling Stockholder Owned (1) Offered Offering (1)(2) Offering (1)(2)
------------------- ---------------- ---------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Paradise Stream (Bahamas)
Limited ........................ 54,290,655 54,290,655 0 0%
TCO Company Limited ............... 34,094,139 34,094,139 0 0
Manuel D. Medina (3) .............. 32,197,913 32,169,913 28,000 *
Vistagreen Holdings (Bahamas),
Ltd ............................ 7,818,473 7,818,473 0 0
Moraine Investments, Inc. ......... 6,613,221 6,613,221 0 0
ATTU Services, Inc. ............... 4,186,173 4,186,173 0 0
Michael Katz (4) .................. 3,055,830 3,015,930 39,900 *
Brian Goodkind (5) ................ 2,269,801 2,269,801 0 0
ARJ, LLC .......................... 1,027,301 1,027,301 0 0
Irving A. Padron, Jr. (6) ......... 516,151 513,651 2,500 *
Edward P. Jacobson (7) ............ 515,651 513,651 2,000 *
William J. Biondi (8) ............. 513,651 513,651 0 0
Willy Bermello .................... 235,620 235,620 0 0
James Siegel and Debra Siegel,
Tenants by the Entirety ........ 1,500,000 1,500,000 0 0
Vinson Richter and Randa Richter,
Tenants by the Entirety ........ 1,500,000 1,500,000 0 0
1999 Mulroy Family Trust .......... 2,500,000 2,500,000 0 0
Thomas M. Mulroy and Dorothy E.
Mulroy, Tenants by the
Entirety ....................... 1,385,000 1,385,000 0 0
1999 Glazer Family Trust .......... 1,000,000 1,000,000 0 0
1999 Preminger Family Trust ....... 700,000 700,000 0 0
Gary R. Siegel & Laura S.
Siegel, Tenants by the
Entirety ....................... 604,000 600,000 4,000 *
Steven M. Glazer & Jan G.
Glazer, Tenants by the
Entirety ....................... 534,000 534,000 0 0
Clifford J. Preminger &
Rebecca B. Preminger,
Tenants by the Entirety ........ 400,000 400,000 0 0
Clifford J. Preminger (9) ......... 252,000 250,000 2,000 0
Gary R. Siegel Family Trust ....... 120,000 120,000 0 0
</TABLE>
14
<PAGE> 18
<TABLE>
<S> <C> <C> <C> <C>
Zachary Preminger Trust ........... 100,000 100,000 0 0
Rebecca B. Preminger .............. 100,000 100,000 0 0
Susan M. Gettler .................. 70,000 70,000 0 0
Stephen H. Ellick ................. 57,000 52,000 5,000 *
Daryle L. Preminger ............... 50,000 50,000 0 0
L. Mark Winston ................... 36,000 36,000 0 0
Gettler Children's Trust .......... 30,000 30,000 0 0
Johnson Family Trust .............. 15,000 15,000 0 0
Preminger & Glazer, PLLC .......... 58,000 58,000 0 0
Guillermo Amore ................... 26,471 26,471 0 0
Howard M. Glicken ................. 20,588 20,588 0
Amancio Victor Suarez ............. 985,294 985,294 0 0
Amancio Jorge Suarez .............. 735,294 735,294 0 0
Joel Silva ........................ 26,471 26,471 0 0
Los Pinos Investment Trust ........ 441,176 441,176 0 0
Latin American
Telecommunication
Enterprises, LLC ............... 588,235 588,235 0 0
Leo I. George ..................... 147,059 147,059 0 0
Dutko Tax Savings Trust ........... 29,412 29,412 0 0
</TABLE>
------------------
* Less than 1%
(1) Except as otherwise noted, we determine beneficial ownership in
accordance with Rule 13d-3(d) promulgated by the Commission under the
Securities and Exchange Act of 1934, as amended. We treat shares of
common stock issuable pursuant to options, warrants and convertible
securities, to the extent these securities are currently exercisable or
convertible within 60 days of August 15, 2000, as outstanding for
computing the percentage of the person holding such securities. Unless
otherwise noted, each identified person or group possesses sole voting
and investment power with respect to shares, subject to community
property laws where applicable. We treat shares not outstanding but
deemed beneficially owned by virtue of the right of a person or group
to acquire them within 60 days as outstanding only to determine the
number and percent owned by such person or group.
(2) Assuming that all shares offered here are sold but no other securities
held by the selling securityholder are sold.
(3) Manuel D. Medina has served as our Chairman of the Board, President and
Chief Executive Officer since April 28, 2000. Prior to that, he served
as the Chairman of the Board and Chief Executive Officer of Terremark
Holdings, Inc. since its founding in 1982.
(4) Michael Katz has served as the President and Chief Operating Officer of
Terremark Real Estate Group, Inc. since April 28, 2000. Prior to that,
he served as the President and Chief Operating Officer of Terremark
Group, Inc., the predecessor to Terremark Real Estate Group.
(5) Brian K. Goodkind has served as our Executive Vice President since
April 28, 2000 and as our Chief Operating Officer since June 25, 2000.
Mr. Goodkind also served as our General Counsel from April 28, 2000
through June 25, 2000. Prior to that, he served as Vice Chairman,
Executive Vice President and General Counsel to Terremark Holdings.
(6) Irving A. Padron, Jr. has served as our Senior Vice President and Chief
Financial Officer since April 28, 2000. Prior to that, he served as
Senior Vice President and Chief Financial Officer of Terremark
Holdings.
(7) Edward P. Jacobson serves as the President of Terremark Construction
Services, Inc. He served in the same capacity prior to the merger
between Terremark Holdings and AmTec.
(8) William J. Biondi has served as the President of Terremark Management
Services, Inc., Terremark Realty, Inc. and Terremark Financial
Services, Inc. since April 28, 2000. He served in the same capacity
prior to the merger between Terremark Holdings and AmTec.
(9) Clifford J. Preminger serves as a director on our board of directors.
He is also that President of T-Rex Developers.
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<PAGE> 19
PLAN OF DISTRIBUTION
We are registering the shares on behalf of the selling stockholders
which includes transferees among such selling stockholders, donees and pledgees
receiving shares from them after the date of this prospectus. The selling
stockholders have advised us that they may sell their shares offered here to
purchasers directly. Alternatively, the selling stockholders may offer the
shares to or through underwriters, brokers/dealers or agents, who may receive
compensation in the form of underwriting discounts, concessions or commissions
from the selling stockholders or the purchasers of shares for whom they may act
as agents. The selling stockholders and any underwriters, brokers/dealers or
agents that participate in the distribution of the shares may be deemed to be
"underwriters" within the meaning of the Securities Act. Any profit realized by
them on the sale of such shares and any discounts, commissions, concessions or
other compensation received by any underwriter, broker/dealer or agent may be
deemed to be underwriting discounts and commissions under the Securities Act.
This compensation may be in excess of that customary in the types of
transactions involved.
Certain selling stockholders have agreed to certain restrictions as set
forth below:
o Stockholders who received our common stock in connection with
the Terremark Holdings and Vistagreen Group transactions have
agreed, except as provided below, not to sell, or otherwise
dispose of any interest in the common stock that we are
registering before April 27, 2001. This does not preclude open
market sales in amounts that would be permitted under SEC Rule
145 as if that rule applied. Generally, Rule 145 allows the
sale of the greater of, in any three month period, one percent
of the outstanding shares or the average trading volume of our
shares on the AMEX during the four weeks prior to filing a
notice of sale with the SEC. These selling stockholders are
also permitted to make sales or otherwise dispose of any
interest in the common stock we are registering before April
27, 2001 to any other of the selling stockholders who were
party to the purchase agreement with the Vistagreen Group or
any of the former Terremark Holdings shareholders;
o Stockholders who received our common stock in connection with
the Telecom Routing Exchange Developers, Inc. transaction have
agreed, except as provided below, not to sell, offer to sell
or otherwise dispose of any interest in the common stock that
we are registering for a period of not less than one year
after May 31, 2000. This does not preclude open market sales
in amounts that would be permitted under SEC Rule 145 as if
that rule applied.
o Stockholders who received our common stock in connection with
the Post Shell Technology Contractors, Inc. transaction have
agreed not to sell, hypothecate, pledge, dispose, assign or
transfer (or enter into any commitment to do the foregoing)
any of the shares we are registering, until June 22, 2001,
without first obtaining our consent.
o Stockholders who received our common stock in connection with
the Spectrum Telecommunications Corp. transaction have agreed
that an aggregate of 1,200,000 of the 3,000,000 total shares
of our common stock issued to them will be held in escrow
until August 9, 2001 to serve as security for the
indemnification obligations of Spectrum and its stockholders
pursuant to our purchase agreement with them.
The selling stockholders have advised us that they may sell the shares
in one or more transactions:
o at fixed prices;
o at market prices prevailing at the time of sale;
o at prices related to prevailing market prices; and/or
o at varying prices determined at the time of sale or at
negotiated prices.
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<PAGE> 20
The sale of shares may be effected in transactions (which may involve
crosses or block transactions):
o on any national securities exchange or quotation service on
which the shares may be listed or quoted at the time of sale;
o in the over-the-counter market;
o in transactions otherwise than on such exchanges or in the
over-the-counter market; or
o through the writing of options.
Because the selling stockholders may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act, the selling
stockholders will be subject to the prospectus delivery requirements of the
Securities Act, which may include delivery through the facilities of the New
York Stock Exchange. We have informed the selling stockholders that the
anti-manipulative provisions of Regulation M promulgated under the Securities
Act may apply to their sales in the market.
Upon being notified by a selling stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, which supplement will disclose:
o the name of each such selling stockholder and of the
participating broker-dealer(s);
o the number of shares involved;
o the price at which such shares were sold;
o the commissions paid or discounts or concessions allowed to
such broker-dealer(s), where applicable;
o that such broker-dealer(s) did not conduct any investigations
to verify the information set out or incorporated by reference
in this prospectus; and
o such other facts as may be material to the transaction.
Pursuant to our agreement with the selling stockholders, we will pay
all expenses of the registration of the shares, including, without limitation,
commission filing fees and expenses of compliance with state securities or "blue
sky" laws; provided, however, that the selling stockholders will pay all
underwriting discounts and selling commissions, if any. We will indemnify the
selling stockholders against certain civil liabilities, including certain
liabilities under the Securities Act, or it will be entitled to the appropriate
contribution.
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<PAGE> 21
SUMMARY HISTORICAL FINANCIAL INFORMATION
We derived the following summary historical financial information from the
audited and unaudited financial statements of Terremark Worldwide, Inc. and its
predecessor, Terremark Holdings, Inc. for the periods presented. Financial
information with respect to AmTec, Inc. is reflected for the period subsequent
to the April 28, 2000 merger. Historical financial information with respect to
AmTec, Inc. is included in our annual report on Form 10-K for the year ended
March 31, 2000 which is incorporated by reference. The information presented is
only a summary and should be read in conjunction with, and is qualified in its
entirety by reference to, the financial statements and notes, which are included
or incorporated by reference in this Registration Statement.
SUMMARY HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
Twelve Months Ended March 31, June 30,
----------------------------------------------------- -------------------
2000 1999 1998 1997 1996 2000 1999
------- ------- ------- ------- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.................................... $15,390 $44,456 $37,632 $ 2,629 $ 784 $ 1,825 $5,475
Total cost of sales............................... 9,422 31,148 22,667 742 -- 668 3,599
Other expenses.................................... 12,001 12,684 13,869 1,925 982 6,654 2,715
(Loss) income from continuing operations.......... (6,033) 624 1,096 (38) (198) (5,497) (839)
Net (loss) income................................. $(6,033) $ 624 $ 1,096 $ (38) $ (198) $ (5,497) $ (839)
Basic and diluted (loss) earnings per
common share.................................... $ (0.09) $ 0.01 $ 0.02 $ -- $ -- $ (0.04) $(0.01)
</TABLE>
<TABLE>
<CAPTION>
As of March 31, As of June 30,
----------------------------------------------------- -------------------
2000 1999 1998 1997 1996 2000 1999
------- ------- ------- ------ -----0 ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate inventories........................... $11,797 $12,888 $33,311 $ 9,483 $3,679 $ 11,873 $15,213
Total assets...................................... $77,998 $17,598 $42,931 $15,258 $4,850 $108,059 $10,274
Long term obligations(1).......................... $28,632 $ 8,731 $32,081 $11,928 $3,954 $ 2,025 $ 6,878
Shareholders' equity.............................. $ 476 $ 6,510 $ 1,709 $ 612 $ 700 $ 95,780 $ 5,671
</TABLE>
--------------------------
(1) Long-term obligations include debt and capitalized lease obligations.
(2) Stockholders' equity as of March 31, 2000 and 1999 include approximately
$4,777 in convertible preferred stock.
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<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the
information contained in our Consolidated Financial Statements and related notes
thereto included elsewhere in this filing. The information is intended to
facilitate an understanding and assessment of significant changes and trends
related to our financial condition and results of operations.
This report and other written reports and oral statements made from
time to time by us may contain so-called "forward looking statements", all of
which are subject to risks and uncertainties. You can identify these
forward-looking statements by the use of words such as "expects", "plans",
"will", "estimates", "forecasts", "projects" and other words of similar meaning.
You can also identify them by the fact that they do not relate strictly to
historical or current facts. These statements are likely to address our growth
strategy, financial results and development programs. You must carefully
consider any such statement and should understand that many factors could cause
actual results to differ from our forward-looking statements. Factors that might
cause such a difference include, without limitation, relationships with the
Company's partners, political instability in countries in which the Company does
business, the Company's ability to obtain proper funding for its business plan,
decline in demand for the Company's services or products, the effect of general
economic conditions generally, factors affecting real estate development or
telecommunications and other risks and uncertainties detailed from time to time
in the Company's Securities and Exchange Commission filings. These factors also
could include inaccurate assumptions and a broad variety of other risks and
uncertainties, including some that are known and some that are not. No
forward-looking statement can be guaranteed and actual future results may vary
materially.
TERREMARK WORLDWIDE, INC.
OVERVIEW
We are engaged in telecom services, telecom facilities management and
real estate services. We were founded in 1982. On April 28, 2000, Terremark
Holdings, Inc. completed a reverse merger with AmTec, Inc., a public company.
Historical information of the surviving company is that of Terremark Holdings,
Inc.
Through an equity investment and other alliances, we provide long
distance international telecommunication services, including telephony and data,
to Asia and develop Internet Protocol (IP) fax services in Hong Kong, Guangdong
Province of the People's Republic of China and Taiwan.
We have combined our expertise in telecommunications and real estate
operations by developing and managing facilities used by telecommunications
companies and Internet service providers to house equipment and operate their
business. Through our 80% owned subsidiary, ColoConnection, Inc., we plan to
lease certain space within these facilities for build-out and sub-leasing to
smaller carriers, Internet providers and web hosting companies.
Our traditional commercial and mixed use development activities include
concept development, acquisition of land, project design, equity and financing
arrangement, construction, sales and leasing. We also develop and sell
condominiums and condominium hotels under its Fortune House concept. Fortune
House allows individual owners of condominium units to participate in a
hotel-style rental program while not in residence.
Under various service agreements, we currently manage commercial and
residential property. Management activities include operations, maintenance,
leasing and brokerage services.
Real estate inventories consist of completed condominiums and
condominiums under development. Real estate inventories, including capitalized
interest and real estate taxes, are carried at the lower of cost or fair value
determined by evaluation of individual projects. Acquisition, development and
other indirect costs related to acquisition and development of real estate
projects are capitalized. Interest and real estate taxes incurred relating to
the construction of condominiums are capitalized during the active development
period. The capitalized costs are
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<PAGE> 23
relieved from inventory on the relative sales value method for each project as
the related revenue is recognized. Real estate inventories do not include sales
and marketing costs or the carrying costs of completed condominium units held
for sale, which are expensed as incurred.
Revenues from construction and development activities are recognized on
a completed contract basis. The related profit is recognized in full when
collectibility of the sale price is reasonably assured and the earnings process
is substantially complete. Revenues and expenses related to the leasing,
management, and financing activities are recognized at the time service is
provided.
Identifiable intangible assets consist primarily of certain rights,
customer relationships and contracts. The identifiable intangible assets are
amortized on the straight-line method over periods ranging from one to five
years. Goodwill represents the excess of the purchase price over the fair value
of identifiable net assets acquired in conjunction with business acquisitions
and is amortized on the straight-line basis over a five year period.
SUBSEQUENT EVENT
On May 31, 2000, we acquired Telecom Routing Exchange Developers, Inc.,
known as "T-Rex Developers", a facilities provider to the telecommunications
industry. T-Rex Developers develops new facilities and converts existing
properties for use as Telecom Routing Exchanges. These facilities are used by
telecommunications companies to house their switches and provide leaseable space
for internet service providers, content providers, co-location companies and
other similar tenants. As part of the acquisition, we issued 8,000,000 shares of
our common stock to the founders of T-Rex Developers, Thomas M. Mulroy and
Clifford J. Preminger and their affiliates.
On June 22, 2000, we acquired Post Shell Technology Contractors, Inc.,
a 17 year old Miami company with experience as a general contractor for complex
construction, including telecommunications facilities. In connection with the
acquisition, we issued 3,000,000 shares of our common stock to Post Shell
shareholders.
In August 2000, we acquired 80% of Spectrum Telecommunications Corp.
("Spectrum") common stock in exchange for three million shares of our
outstanding stock and forgiveness of the outstanding balance due under
Spectrum's line of credit, approximately $3.5 million, from us. We have an
option, until February 2002, to acquire the remaining 20% of its shares.
Spectrum is a Miami, Florida based provider of telecommunications services with
operations in Brazil, Chile and Peru.
On August 15, 2000, we acquired IXS.NET, an internet telephony service
provider with operations primarily in the People's Republic of China, Hong Kong
and Taiwan. Prior to the acquisition, we held debt of IXS.NET, which was
convertible into 25% of its equity. In connection with the acquisition, we
issued 412,500 shares of our common stock to IXS.NET shareholders.
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THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999.
REVENUE. Revenue from real estate sales decreased $4 million, or 85.1%,
from $4.7 million for the three months ended June 30, 1999 to $0.7 million for
the three months ended June 30, 2000. Revenue for the three months ended June
30, 1999 is attributable to the sale of 24 condominium units. Only three units
were sold during the comparable period in 2000. The decrease resulted from fewer
units being available for sale. Commission income earned from lease signings
increased $211,000 or 173.0%, from $122,000 for the three months ended June 30,
1999 to $333,000 for the three months ended June 30, 2000, due to the timing of
lease renewals. Management fees charged with respect to the management of
commercial and residential property increased $100,000, or 39.2%, from $255,000
for the three months ended June 30, 1999 to $355,000 for the three months ended
June 30, 2000. The increase is a result of the acquisition of various office and
telecom building management contracts. Construction fees increased $58,000, or
68.2%, from $85,000 for the three months ended June 30, 1999 to $143,000 for the
three months ended June 30, 2000. The increase is attributable to the increase
in the number of third party construction projects being managed. Dividends on
redeemable preferred stock was $104,417 for the three months ended June 30, 1999
compared to $34,806 for the three months ended June 30, 2000. The preferred
stock was converted to shares of our common stock on April 28, 2000. No revenues
are realized in either period from our telecom services segments.
COST OF REAL ESTATE SOLD. Cost of real estate sold decreased by $3.0
million, or 85.7%, from $3.5 million for the three months ended June 30, 1999 to
$0.5 million for the three months ended June 30, 2000, which is attributable to
the decrease in condominium units sold.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased by $1.4 million, or 73.7%, from approximately $1.9 million
for the three months ended 27 June 30, 1999 to approximately $3.3 million for
the three months ended June 30, 2000. This increase is attributable to
additional operating expenses related to AmTec and T-Rex operations subsequent
to their acquisition.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased
from $569,000 for the three months ended June 30, 1999 to $800,000 for the three
months ended June 30, 2000, representing an increase of $231,000, or 40.6%.
Sales and marketing expenses were incurred in connection with the promotion of
sales of condominium units. For the three months ended June 30, 1999, Terremark
was marketing one condominium project compared to two during the three months
ended June 30, 2000.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased from $17,000 for the three months ended June 30, 1999 to $1.6
million for the three months ended June 30, 2000. The increase resulted
primarily from amortization of intangible assets associated with the merger with
AmTec and the acquisition of both T-Rex and Post Shell.
INTEREST INCOME. Interest income increased from $4,000 for the three
months ended June 30, 1999 to $163,000 for the three months ended June 30, 2000,
due to an increase of approximately $28.1 million in cash resulting from the
sale of approximately 68.7 million common shares.
OTHER INCOME (EXPENSE). Other income decreased from $60,000 for the
three months ended June 30, 1999 to $(703,000) for the three months ended June
30, 2000. This decrease is primarily the result of operating costs, including
interest expense, associated with Terremark Centre, prior to sale. These costs
are considered non-recurring.
NET LOSS. Overall net loss increased from $(839,000) for the three
months ended June 30, 1999 to $(5.5) million for the three months ended June 30,
2000. This was primarily due to the decrease in net revenues from the sale of
condominiums, amortization of identifiable intangibles and goodwill and the
additional operating expenses related to AmTec and T-Rex operations subsequent
to their acquisition.
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<PAGE> 25
LIQUIDITY AND CAPITAL RESOURCES. Cash flows provided by operations for
the three months ended June 30, 1999 was $2.2 million compared to cash used in
operations of $7.3 million for the three months ended June 30, 2000, a decrease
of $9.1 million. The decrease in cash flows resulted primarily from the net
loss.
Cash flows used in investing activities for the three months ended June
30, 1999 was $30,000 compared to $53.8 million provided by investing activities
for the three months ended June 30, 2000, an increase in cash flow of $53.5
million. Cash flows from investing activities increased primarily due to the
sale of Terremark Centre accounted for as real estate held for sale.
Cash flows used in financing activities for the three months ended June
30, 1999 was $1.8 million compared to cash flows used by financing activities of
$38.7 million for the three months ended June 30, 2000, an increase of $36.9
million. The increase resulted primarily from the repayment of debt of
approximately $68.4 million, partially offset by $28.1 million provided from the
sale of common stock.
In April 2000, we purchased, for $3.5 million, a 26.9% ownership
interest in Boca Technology Center, LLC, an entity formed for the purpose of
acquiring and operating the property formerly known as Blue Lake Technology
Center, a 1,770,000 square foot mixed use facility in Boca Raton, Florida.
In March 2000, we purchased, for $447,930, a 19.8% membership interest
in Cleveland Technology Center, LLC, an entity formed for the purpose of
acquiring and operating the property formerly known as The Cleveland Technology
Center, a 475,000 square foot mixed use facility in Cleveland, Ohio.
Historically, we have met our capital requirements primarily through
debt financing and operating cash flow. Debt financing primarily includes the
following three loans: (1) loan from a commercial lender, secured by a first
mortgage on real estate which has been reduced from $5.6 million at June 30,1999
to $2.1 million at June 30, 2000; (2) a $7.5 million line of credit from a
commercial lender, secured by a first mortgage on real estate with approximately
$2.0 million outstanding at June 30, 2000; (3) an unsecured loan from a
corporation with a balance at June 30, 2000 of approximately $1.5 million.
On July 25, 2000, we borrowed $7.5 million from an individual secured
by a first mortgage on certain real estate inventory. The loan accrues interest
at 12.0% per annum, payable monthly and matures on March 1, 2001. In conjunction
with the new loan, we canceled our $7.5 million line of credit with a financial
institution and are actively negotiating to reinstate the line of credit on an
unsecured basis.
We believe that our cash and cash equivalents, borrowing capacity and
access to other financing sources will be adequate to meet our anticipated
short-term and long-term liquidity requirements, including scheduled debt
repayments and capital expenditures.
In conjunction with our recent acquisitions, we have assumed operating
lease commitments and other debt obligations. We may need to raise additional
funds or obtain third party financing to support our expansion and development
activities. Although we believe that financing is available, there can be no
assurance that we will be able to obtain the same, or if available, that the
terms will be acceptable.
INFLATION. The general rate of inflation in the United States has been
insignificant over the past several years and has not had a material impact on
our results of operations. As we expand international operations, inflation
rates in those countries could impact our results of operations.
MARKET RISK. We have not entered into any financial instruments for
trading or hedging purposes.
We are not exposed to fluctuations in foreign currencies relative to
the U.S. dollar. As we expand international operations, we anticipate we will be
exposed to such fluctuations. We may enter into hedging instruments to mitigate
any potential exposure.
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<PAGE> 26
The carrying values of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses is a reasonable approximation of their
fair value.
Economic, interest rates and other conditions greatly impact the real
estate market. It is possible that our operations will not generate income
sufficient to meet our operating expenses or will generate income and capital
appreciation, if any, at a rate less than that anticipated or available through
comparable real estate or other investments.
The real estate industry is cyclical and affected by changes in general
and local economic and other conditions including employment levels, demographic
considerations, availability of financing, interest rate levels, consumer
confidence and real estate demand. In addition, developers are subject to
various risks, many of them outside their control including competitive
overbuilding, availability and cost of property, materials and labor, adverse
weather conditions which cause delays in construction schedules, cost overruns,
changes in government regulations pertaining to building standards or
environmental matters, increase in real estate taxes and other local government
fees and acts of God, such as hurricanes and floods.
We cannot predict whether interest rates will be at levels attractive
to prospective tenants or buyers and any increase in interest rates could affect
our business adversely.
TERREMARK HOLDINGS, INC.
The following management's discussion and analysis of financial
condition and results of operation is based on Terremark's historical
information prior to the merger.
OVERVIEW
Terremark Holdings, Inc. was formed in 1980 and along with its
subsidiaries, is engaged in the development, construction, sale, leasing,
management and financing of various real estate projects. Terremark has provided
this diversified range of services to private and institutional investors, as
well as for its own account. The real estate projects with which Terremark has
been involved have ranged from retail to high-rise office complexes, mixed use
projects, to condominiums, condominium hotels, and governmental assisted
housing.
Terremark is also involved in certain ancillary businesses, which
complement its core development operations. Specifically, Terremark engages in
brokering financial services, property management, construction, construction
management, condo hotel management, residential sales and commercial leasing and
brokerage, and advisory services.
Terremark has been active both locally and internationally, although
its current projects are all located in South Florida. Terremark considers that
its success is attributable to its team approach which interconnects all of the
various divisions of Terremark and its focus on the most important step in the
development process, which it believes is the identification and analysis of
viable opportunities.
On April 28, 2000, Terremark merged with AmTec, Inc., a company that
provides value-added telecommunications services to and from the Far East and
has telecommunications investments in the People's Republic of China. AmTec
initially focused its business on China because of China's large and rapidly
growing need for telecommunications services and its requirement for foreign
capital and technology to meet that need. More recently, AmTec has formed a
joint venture with Fusion Telecommunications International to provide telecom
services, both voice and data, to and from Asia. AmTec has also invested in
IXS.NET, Inc. to provide fax services over the Internet, prepaid credit cards
and other Internet Protocol based services. AmTec's joint venture operations in
six cellular networks in Hebei Province in Northeast China have been terminated.
AmTec continues to have a joint venture with the Electronics Industry Department
of Hebei Province and are repositioning that joint venture with a view to
providing Internet Protocol fax, voice and other services which can be
transmitted over digital telephone lines or the Internet.
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<PAGE> 27
YEAR ENDED MARCH 31, 2000 COMPARED TO YEAR ENDED MARCH 31, 1999
REVENUE. Revenue from real estate sales decreased $31 million, or
73.8%, from $42 million in 1999 to $11 million in 2000. 1999 revenue of $42
million from real estate sales is attributable to the sale of 223 condominium
units while 2000 revenue of $11 million is attributable to the sale of 54
condominium units. Commission income earned from lease signings increased
$200,000, or 20.0%, from $1.0 million in 1999 to $1.2 million in 2000 due to the
timing of lease renewals. Development fees increased $720,000, or 115.2%, from
$625,000 in 1999 to $1.35 million in 2000. The increase is due to the signing of
development agreements in 2000. Management fees charged with respect to the
management of commercial and residential property increased $301,000, or 39.2%,
from $768,000 in fiscal 1999 to $1.1 million in fiscal 2000. The increase is a
result of the acquisition of various office building management contracts.
Construction fees of $749,000 in 2000 pertained to the management of various
construction projects. Terremark did not generate any construction fees in 1999.
COST OF REAL ESTATE SOLD. Cost of real estate sold decreased by $22.2
million, or 71.4%, from $31.1 million for the year ended March 1999 to $8.9
million for the year ended March 2000, which is attributable to the decrease in
condominium unit sales. The decrease in gross margin as percentage of sales
revenue from 25.9% in 1999 to 19.4% in 2000 is mainly attributable to reduced
margins on the final sell-out of certain condominium units.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased by $1.9 million, or 31.5%, from approximately $6.0 million in
1999 to approximately $7.9 million in 2000. This increase is attributable
primarily to increased costs related to hospitality and management services.
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<PAGE> 28
SALES AND MARKETING EXPENSES. Sales and Marketing Expenses decreased
from $5.5 million in 1999 compared to $2.9 million in 2000, representing a
decrease of $2.6 million, or 46.5%. Sales and marketing expenses were used to
promote sales of condominium units.
DEPRECIATION EXPENSE. Depreciation expense increased from $50,000 to
$81,000, an increase of 62.0%, which resulted from the increase in furniture and
computer equipment.
INTEREST INCOME. Interest income decreased $41,000, or 15.6%, in 2000,
from $263,000 in 1999 to $222,000 in 2000, due to a decrease in cash balances.
INTEREST EXPENSE, NET OF CAPITALIZED INTEREST. Interest expense
decreased $695,000, or 46.3%, in 2000, from $1.5 million in 1999 to $805,000 in
2000, due to a decrease in debt financing used to fund the completion of a
condominium project in 1999.
OTHER (EXPENSE) INCOME. Other (expense) income decreased in 2000, from
income of $167,000 in 1999 to expense of $69,000 in 2000. This decrease is a
result of the net operating loss associated with carrying costs of real estate
held for sale.
DIVIDEND ON PREFERRED STOCK. Dividend on redeemable preferred stock was
$417,669 in fiscal 2000. The preferred stock was issued on March 31, 1999.
NET (LOSS) INCOME. Overall net income was down $5.4 million, or 43.1%,
from $624,000 in 1999 to $(6.0) million in 2000. This was due to the decrease in
real estate revenue and increase in general and administrative expenses in 2000
as compared to 1999.
YEAR ENDED MARCH 31, 1999 COMPARED TO YEAR ENDED MARCH 31, 1998
REVENUE. Revenue from real estate sales increased $5.0 million, or
13.5%, from $37 million in 1998 to $42.0 million in 1999. Revenue in 1999 from
real estate sales includes condominium unit sales of $47.0 million. Revenue from
real estate sales in 1998 includes the sale of land for $23.8 million and
condominium unit sales of $13.2 million. Commission income earned from leasing
increased $860,000, from $162,000 in 1998 to $1,022,000 in 1999 due to the
timing of lease renewals. The increase in development fees from $0 in 1998 to
$625,000 in 1999 is due to the signing of various project development agreements
in 1999. Management fees charged with respect to the management of commercial
and residential property more than doubled, increasing from $312,000 in 1998 to
$768,000 in 1999 as a result of the acquisition of various office building
management contracts. Construction fees in 1998 were related to the management
of a construction project. Terremark did not generate any construction fees in
1999.
COST OF REAL ESTATE SOLD. Cost of real estate sold increased by $8.4
million, or 37.0%, from $22.7 million for the year ended March 1998 to $31.1
million for the year ended March 1999, which is attributable to an increase in
condominium unit sales. The decrease in gross margin as percentage of sales
revenue from 38.8% in 1998 to 25.9% in 1999 is mainly attributable to the sale
of land in 1998 which had a gross margin of 55.0%.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses fell by 14.3% from approximately $7.0 million in 1998 to approximately
$6.0 million in 1999. This decrease is attributable to a fee to a financial
institution for a loan commitment, internal costs related to the sale of land
and an increase in compensation to existing employees, all of which was paid in
1998.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased
from $1.8 million in 1998 to $5.5 million in 1999, representing an increase of
over 200%. Sales and marketing expenses were used to promote sales of
condominium units.
DEPRECIATION EXPENSE. Depreciation expense increased from $19,000 to
$50,000, an increase of 163.2%, which resulted from the increase in furniture
and computer equipment.
INTEREST INCOME. Interest income increased 224.7% from $81,000
in 1998 to $263,000 in 1999, due to an increase in cash balances.
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<PAGE> 29
INTEREST EXPENSE, NET OF CAPITALIZED INTEREST. Interest expense
increased 25.0% in 1999, from $1.2 million in 1998 to $1.5 million in 1999 due
to an increase in debt financing used to fund the completion of a condominium
project.
OTHER INCOME. Other income increased 173.8% in 1999, from $61,000 in
1998 to $167,000 in 1999. This increase is a result of rental income from
condominium units and a lease cancellation fee.
NET INCOME. Overall net income decreased 43.3%, from $1.1 million in
1998 to $624,000 in 1999. This was primarily due to the reduced gross margin
realized on the sale of real estate compared to 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operations for the year ended March 31, 1999 was
$15.9 million compared to $7.4 million used in operations for the same period in
2000, a decrease of $23.3 million or approximately 146.5%. The increase in cash
flows used in operations resulted primarily from a reduction in proceeds from
the sale of condominium units.
Cash flows used in investing activities for the year ended March 31,
1999 was $194,000 compared to $735,000 used in investing activities for the same
period in 2000, a increase of $541,000. Cash flows from investing activities
decreased primarily because of purchase of fixed assets.
Cash flows used in financing activities for the year ended March 31,
1999 was $19.2 million compared to cash flows provided in financing activities
of $8.7 million for the same period in 2000, an increase of $27.9 million. The
increase in cash from financing activities resulted primarily from an increase
in new borrowings (net of payments on loans), related to condominium projects.
In the year ended, March 31, 1999, Terremark spent approximately $8.9
million on capital expenditures related primarily to properties which were
completed and partially sold in fiscal year 1999 and will continue to be sold
beyond fiscal year 1999. In the year ended, March 31, 2000, Terremark spent
approximately $8.9 million on capital expenditures related to the development of
a new condominium project.
Terremark's long-term capital requirements consist of funds for
investment in development projects as well as for debt service. Historically,
Terremark has met its capital requirements primarily through debt financing and
operating cash flow. The primary debt financing is a loan from a commercial
lender, secured by a first mortgage on the real estate and guaranteed by a
majority shareholder for approximately $28.3 million and a financing from a
corporation for approximately $27.1 million guaranteed by the Company. The
financing was used to acquire the general and limited partnership interests that
comprise Terremark Centre, Ltd. Other debt financing includes the following two
loans: (1) loan from a commercial lender, secured by a first mortgage on real
estate and guaranteed by the majority shareholder. This loan has also been
substantially reduced from $17.5 million in March 31,1998 to $2.7 million in
2000. (2) a line of credit from a commercial lender, secured by a first mortgage
on real estate and guaranteed by a shareholder. As of March 31, 2000, the
balance outstanding is approximately $14.6 million.
We believe that our cash and cash equivalents, cash generated from
operations, borrowing capacity and access to other financing sources will be
adequate to meet its anticipated short-term and long-term liquidity
requirements, including scheduled debt repayments and capital expenditures.
INFLATION
We operate in the United States. The general rate of inflation has been
insignificant over the past several years and has not had a material impact on
our results of operations.
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<PAGE> 30
MARKET RISK
One of the major risks of developing and investing in real estate is
the possibility that properties will not generate income sufficient to meet
operating expenses and will generate income and capital appreciation, if any, at
a rate less than that anticipated or available through investment in comparable
real estate or other investments. The real estate industry is cyclical and
affected by changes in general and local economic and other conditions including
employment levels, demographics considerations, availability of financing,
interest rate levels, consumer confidence and real estate demand. Economic
conditions in ancillary markets.
In addition, developers are subject to various risks, many of them
outside the control of the developer including competitive overbuilding,
availability and cost of property, materials and labor, adverse weather
conditions which can cause delays in construction schedules, cost overruns,
changes in government regulations pertaining to building standards or
environmental matters, increases in real estate taxes and other local government
fees and acts of God, such as hurricanes and floods. Terremark cannot predict
whether interest rates will be at levels attractive to prospective tenants or
buyers and any increase in interest rates could affect Terremark's business
adversely.
SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING PRONOUNCEMENTS
SIGNIFICANT ACCOUNTING POLICIES. Real estate inventories consist of
completed condominiums and condominiums under development. Real estate
inventories, including capitalized interest and real estate taxes, are carried
at the lower of cost or fair value determined by evaluation of individual
projects. Acquisition, development, interest and other indirect costs related to
acquisition and development of real estate projects are capitalized. The
capitalized costs are charged to earnings as the related revenue is recognized.
Sales and marketing costs and the carrying costs of condominium units completed
and held for sale are expensed as incurred. Total land, development, and common
costs are apportioned on the relative sales value method for each project.
Revenues from construction and development activities are recognized on
a completed contract basis. The related profit is recognized in full when
collectibility of the sale price is reasonably assured and the earnings process
is substantially complete. Revenues and expenses related to the leasing,
management and financing activities are recognized at the time service is
provided.
NEW ACCOUNTING PRONOUNCEMENTS. In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133 (FASB
133), "Accounting for Derivative Instruments and Hedging Activities," which
becomes effective and is required to be adopted in years beginning after June
15, 2000. FASB 133 requires all derivatives to be recorded in the balance sheet
at fair value. FASB 133 establishes the accounting procedures for hedges that
will affect the timing of recognition and the manner in which hedging gains and
losses are recognized in our financial statements. Derivatives that are not
hedges must be adjusted to fair value through income. If derivatives are hedges,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or will be recognized in other
comprehensive income until the hedged item is recognized in earnings. We have no
derivative instruments.
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<PAGE> 31
LEGAL MATTERS
Greenberg Traurig, P.A., Miami, Florida, has passed upon the validity
of the issuance of the shares being offered by this prospectus.
EXPERTS
The financial statements as of March 31, 2000 and 1999 and for each of
the three years in the period ended March 31, 2000 of Terremark Holdings, Inc.
included in this Registration Statement on Form S-3 have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent certified
public accountants, given on the authority of said firm as experts in auditing
and accounting.
The financial statements incorporated in this registration statement by
reference from the Annual Report on Form 10-K of Terremark Worldwide, Inc.
(formerly known as AmTec, Inc.) for the year ended March 31, 2000 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
WHERE YOU CAN OBTAIN ADDITIONAL INFORMATION
We file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy the materials we file with the Commission at the Commission's public
reference room at 450 Fifth Street, N.W. Washington D.C. 20549 and at the
Commission's regional offices in Chicago, Illinois and New York, New York.
Please call the Commission at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. The Commission also maintains an
Internet site that contains reports, proxy and information statements and other
information regarding issuers that file with the Commission, including us. The
site's address is http://www.sec.gov. You can request copies of those documents,
upon payment of a duplicating fee, by writing to the Commission.
INCORPORATION BY REFERENCE
The Commission allows us to "incorporate by reference" in this
prospectus other information we file with them, which means that we can disclose
important information to you by referring you to those documents. This
prospectus incorporates important business and financial information about us
that is not included in or delivered with this prospectus. The information that
we file later with the SEC will automatically update and supersede the
information included in and incorporated by reference in this prospectus. We
incorporate by reference the documents listed below which have been filed with
the Commission and any future filings made with the Commission under Sections
13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"), until we sell all the securities offered by this prospectus:
1. our current report on Form 8-K filed May 15, 2000;
2. our annual report on Form 10-K405 filed June 29, 2000;
3. our current report on Form 8-K filed June 30, 2000;
4. our definitive proxy statement on Form 14A dated July 28,
2000;
5. our quarterly report on Form 10-Q filed on August 14, 2000;
and
6. our current report on Form 8-K/A filed August 23, 2000.
We have filed each of these documents with the Commission and they are
available from the Commission's Internet site and public reference rooms
described under "Where you can obtain additional available
28
<PAGE> 32
information about us" above. You may also request a copy of these filings, at no
cost, by writing or calling us at the following address:
Brian K. Goodkind
Executive Vice President and Chief Operating Officer
Terremark Worldwide, Inc.
2601 S. Bayshore Drive
Coconut Grove, Florida 33133
Telephone requests may be directed to Brian K. Goodkind at
(305) 856-3200.
29
<PAGE> 33
TERREMARK WORLDWIDE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PRO FORMA (UNAUDITED):
Pro Forma Condensed Consolidated Statement of Operations for the year ended
March 31, 2000......................................................................... F-1
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year
ended March 31, 2000................................................................... F-3
Pro Forma Condensed Consolidated Statement of Operations for the three months ended
June 30, 2000.......................................................................... F-4
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations for the three
months ended June 30, 2000............................................................. F-5
HISTORICAL:
Annual Periods - Terremark Holdings, Inc.
Report of Independent Certified Public Accountants..................................... F-7
Consolidated Balance Sheets as of March 31, 2000 and 1999.............................. F-8
Consolidated Statements of Operations for the years ended
March 31, 2000, 1999 and 1998........................................................ F-9
Consolidated Statement of Changes in Stockholders' Equity for the years ended
March 31, 2000, 1999 and 1998........................................................ F-10
Consolidated Statements of Cash Flows for the years ended
March 31, 2000, 1999 and 1998........................................................ F-11
Notes to Consolidated Financial Statements............................................. F-13
Quarterly Periods (Unaudited) - Terremark Worldwide, Inc.
Consolidated Balance Sheets as of June 30, 2000 and March 31, 2000..................... F-28
Consolidated Statements of Operations for the three months ended
June 30, 2000 and 1999............................................................... F-29
Consolidated Statement of Changes in Stockholders' Equity for the three months ended
June 30, 2000........................................................................ F-30
Consolidated Statements of Cash Flows for the three months ended
June 30, 2000 and 1999............................................................... F-31
Notes to Consolidated Financial Statements............................................. F-32
</TABLE>
30
<PAGE> 34
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial statements
(the "pro forma financial statements") are derived from historical financial
statements of Terremark Holdings and AmTec, and have been prepared to illustrate
the effects of the merger of Terremark Holdings and AmTec, including
Vistagreen's acquisition of a 35% ownership interest in the merged company with
proceeds from repayment of the notes delivered by Terremark to Vistagreen for
the purchase of Terremark Centre as described below.
The unaudited pro forma condensed statements of operations for the three months
ended June 30, 2000 and for the year ended March 31, 2000 give effect to the
merger of Terremark and AmTec as if the transaction had occurred on April 1,
1999. An unaudited pro forma balance sheet illustrating the merger transaction
is not provided, since the transaction is already reflected in the unaudited
balance sheet as of June 30, 2000, which is included in the unaudited financial
statements as of and for the period ended June 30, 2000, appearing elsewhere in
this document.
The pro form financial statements are unaudited and do not purport to be
indicative of actual results of operations that would have been reported had
such events actually occurred on the dates specified, nor do they purport to be
indicative of Terremark Worldwide's future results. No estimates of future cost
savings related to among other things, administrative consolidations and other
efficiencies have been reflected in these pro forma financial statements. The
pro forma financial statements, including the notes thereto, should be read in
conjunction with the audited and unaudited historical financial statements,
including the notes thereto, appearing elsewhere in this document or
incorporated by reference.
The merger transaction resulted in Terremark Holdings' shareholders receiving a
majority of the combined company's voting common stock. Accordingly, the merger
was treated as a reverse acquisition for accounting purposes, with Terremark
Holdings as the acquirer. After the merger, comparative historical information
of the combined company is that of Terremark Holdings. Subsequent to the merger,
the company has been known as Terremark Worldwide, Inc.
F-1
<PAGE> 35
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the year ended March 31, 2000
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
Terremark AmTec Merger Company
Historical Historical Adjustments(a) Pro Forma
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Total revenues $ 15,390 $ -- $ -- $ 15,390
Expenses
Cost of real estate sold and services 9,422 -- -- 9,422
Selling, general and administrative 10,851 4,350 -- 15,201
Depreciation and Amortization 81 -- 7,329 7,410
------------- ------------- ------------- -------------
Operating expenses 20,354 4,350 7,329 32,033
------------- ------------- ------------- -------------
Loss from operations (4,964) (4,350) (7,329) (16,643)
Other (expense) income
Equity in losses of affiliate and
unconsolidated subsidiary -- (318) -- (318)
Interest income 222 -- -- 222
Interest expense (804) -- -- (804)
Other (expense) income 38 94 -- 132
Dividend on preferred stock (418) (350) 418 (350)
------------- ------------- ------------- -------------
Total other (expense) income (962) (574) 418 (1,118)
------------- ------------- ------------- -------------
Loss before income taxes (5,926) (4,924) (6,911) (17,761)
Income taxes
Current tax expense 107 -- -- 107
Deferred tax expense -- -- -- --
------------- ------------- ------------- -------------
Total income tax expense 107 -- -- 107
------------- ------------- ------------- -------------
Net loss $ (6,033) $ (4,924) $ (6,911) $ (17,868)
============= ============= ============= =============
Loss per share
Basic and Diluted $ (0.09) $ (0.15) $ (0.10)
============= ============= =============
Weighted average shares outstanding
Basic and Diluted (b) 70,685,845 33,960,017 76,576,334 181,222,196
------------- ------------- ------------- -------------
</TABLE>
F-2
<PAGE> 36
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE YEAR ENDED MARCH 31, 2000
(a) Merger adjustments include approximately $7,329,000 in amortization
from April 1, 1999 through March 31, 2000 of goodwill resulting from
the excess purchase price of AmTec over the estimated fair value of
AmTec's identifiable assets and liabilities. The purchase price was
approximately $49.9 million and goodwill resulting from the purchase
price allocation was approximately $35.5 million. The goodwill
amortization period is five years and is based on preliminary studies
and valuations of AmTec by a third party. Management does not believe
that the final purchase price allocation and resulting amortization
will produce materially different results than those reflected herein.
Merger adjustments also include the elimination of approximately
$418,000 in dividends on Terremark preferred stock, which was converted
into common shares in conjunction with the Terremark and AmTec merger
transaction.
(b) Basic weighted average shares represents the total number of shares
issued to related shareholders in the merger and includes the
conversion of Terremark's shares to shares in the merged company as if
such conversion had occurred at April 1, 1999.
F-3
<PAGE> 37
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the three months ended June 30, 2000
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
Terremark AmTec Merger Company
Historical Historical (a) Adjustments (b) Pro Forma
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Total revenues $ 1,825 $ -- $ -- $ 1,825
Expenses
Cost of real estate sold and services 668 -- -- 668
Selling, general and administrative 4,067 303 -- 4,370
Depreciation and amortization 1,594 -- 611 2,205
------------- ------------- ------------- -------------
Operating expenses 6,329 303 611 7,243
------------- ------------- ------------- -------------
Loss from operations (4,504) (303) (611) (5,418)
Other (expense) income
Equity in losses of affiliate and
unconsolidated subsidiary (174) -- -- (174)
Interest income 163 -- -- 163
Interest expense (245) -- -- (245)
Other (expense) income (702) 33 -- (669)
Dividend on preferred stock (35) -- 35 --
------------- ------------- ------------- -------------
Total other (expense) income (993) 33 35 (925)
------------- ------------- ------------- -------------
Loss before income taxes (5,497) (270) (576) (6,343)
Income taxes
Current tax expense -- -- -- --
Deferred tax expense -- -- -- --
------------- ------------- ------------- -------------
Total income tax expense -- -- -- --
------------- ------------- ------------- -------------
Net Loss $ (5,497) $ (270) $ (576) $ (6,343)
============= ============= ============= =============
Loss per share
Basic and Diluted $ (0.04) $ (0.03)
============= =============
Weighted average shares outstanding
Basic and Diluted (c) 152,996,230 35,325,641 188,321,871
============= ============= =============
</TABLE>
F-4
<PAGE> 38
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE THREE MONTHS ENDED JUNE 30, 2000
(a) AmTec Historical represents the results of operations of AmTec for the
period April 1, 2000 through April 28, 2000 and are unaudited.
(b) Merger adjustments include approximately $611,000 in amortization from
April 1, 2000 through April 28, 2000 of goodwill resulting from the
excess purchase price of AmTec over the estimated fair value of AmTec's
identifiable assets and liabilities. The purchase price was
approximately $49.9 million and goodwill resulting from the purchase
price allocation was approximately $35.5 million. The goodwill
amortization period is five years and is based on preliminary studies
and valuations of AmTec by a third party. Management does not believe
that the final purchase price allocation and resulting amortization
will produce materially different results than those reflected herein.
Merger adjustments also include the elimination of approximately
$35,000 in dividends on Terremark preferred stock, which was converted
into common shares in conjunction with the Terremark and AmTec merger
transaction.
(c) Basic weighted average shares represents the total number of shares
issued to related shareholders in the merger and includes the
conversion of Terremark's shares to shares in the merged company as if
such conversion had occurred at April 1, 2000.
F-5
<PAGE> 39
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
F-6
<PAGE> 40
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Terremark Holdings, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Terremark Holdings, Inc. and its subsidiaries at March 31, 2000 and 1999, and
the results of their operations and their cash flows for each of the three years
in the period ended March 31, 2000, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Fort Lauderdale, Florida
June 26, 2000
F-7
<PAGE> 41
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------
2000 1999
------------ ------------
ASSETS
<S> <C> <C>
Real estate inventories $ 11,797,306 $ 12,888,206
Cash and cash equivalents 3,391,977 2,808,033
Restricted cash 506,776 31,317
Accounts receivable 777,307 589,578
Notes receivable 2,755,413 337,050
Furniture and equipment, net of accumulated depreciation
of $133,943 and $52,679, respectively 1,010,735 191,018
Other assets 1,977,373 752,389
Real estate held for sale 55,781,259 --
------------ ------------
Total assets $ 77,998,146 $ 17,597,591
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 72,784,079 $ 8,630,556
Trade payable and other liabilities 4,083,039 1,734,280
Interest payable 72,914 387,696
Tenant and customer deposits 458,962 235,396
Deferred revenue 122,721 100,000
------------ ------------
77,521,715 11,087,928
------------ ------------
Preferred stock, $1 par value, 4,176,693 shares
authorized, issued and outstanding 4,176,693 4,176,693
Common stock, $.001 par value, 300,000,000
authorized; 70,685,845 shares issued and outstanding 70,686 70,686
Paid in capital 7,954,010 7,954,010
Retained deficit (11,724,958) (5,691,726)
Commitments and contingencies (Note 11)
------------ ------------
476,431 6,509,663
------------ ------------
Total liabilities and stockholders' equity $ 77,998,146 $ 17,597,591
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-8
<PAGE> 42
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
--------------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenues
Real estate sales $ 11,008,332 $ 42,041,391 $ 37,038,299
Commission income 1,218,647 1,021,560 162,367
Development fees 1,345,000 625,000 --
Management fees 1,069,176 768,161 311,791
Construction fees 749,262 -- 120,000
------------ ------------ ------------
Operating revenues 15,390,417 44,456,112 37,632,457
------------ ------------ ------------
Expenses
Cost of real estate sold 8,867,641 31,147,530 22,666,891
Construction expenses 554,610 -- --
General and administrative expenses 7,917,793 6,020,047 7,023,862
Sales and marketing expenses 2,933,125 5,479,561 1,783,621
Provision for write down of real estate inventories -- -- 3,891,911
Bad debt expense -- 71,472 81,900
Depreciation and amortization 81,264 50,012 19,475
------------ ------------ ------------
Operating expenses 20,354,433 42,768,622 35,467,660
------------ ------------ ------------
(Loss) income from operations (4,964,016) 1,687,490 2,164,797
------------ ------------ ------------
Other income (expense)
Interest income 222,062 263,179 80,944
Interest expense (804,785) (1,493,539) (1,210,191)
Other (expense) income (68,824) 167,056 61,000
Dividend on preferred stock (417,669) -- --
------------ ------------ ------------
Total other expense (1,069,216) (1,063,304) (1,068,247)
------------ ------------ ------------
(Loss) income before income taxes (6,033,232) 624,186 1,096,550
Income taxes
Current tax expense -- -- 106,924
Deferred tax (benefit) -- -- (106,924)
------------ ------------ ------------
Total income tax expense -- -- --
------------ ------------ ------------
Net (loss) income $ (6,033,232) $ 624,186 $ 1,096,550
============ ============ ============
Basic and diluted (loss) earnings per common share $ (0.09) $ 0.01 $ 0.02
============ ============ ============
Weighted average common shares outstanding 70,685,845 70,685,845 70,685,845
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-9
<PAGE> 43
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
---------------------------------------------------------------
COMMON STOCK
PAR VALUE $.001
-------------------- ADDITIONAL
PREFERRED ISSUED PAID-IN RETAINED
STOCK SHARES AMOUNT CAPITAL DEFICIT
----------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1997 $ -- 70,685,845 $70,686 $7,954,010 $ (7,412,462)
Net income 1,096,550
----------- ---------- ------- ---------- ------------
Balance at March 31, 1998 -- 70,685,845 70,686 7,954,010 (6,315,912)
Preferred stock issued in
conversion of
debt (4,176,693
shares $1/share) 4,176,693
Net income 624,186
----------- ---------- ------- ---------- ------------
Balance at March 31, 1999 4,176,693 70,685,845 70,686 7,954,010 (5,691,726)
Net loss (6,033,232)
----------- ---------- ------- ---------- ------------
Balance at March 31, 2000 $ 4,176,693 70,685,845 $70,686 $7,954,010 $(11,724,958)
=========== ========== ======= ========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-10
<PAGE> 44
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
--------------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (6,033,232) $ 624,186 $ 1,096,550
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities
Depreciation 23,967 38,847 19,475
Amortization of loan costs to interest expense 137,749 118,362 169,557
Amortization of capital lease 57,297 11,165 --
Write off of bad debt -- 71,472 81,900
Gain on sale of building -- -- (61,690)
Write-down of Terremark Centre 443,627
Provision for impairment of real estate inventories -- -- 3,891,911
(Increase) decrease in:
Real estate inventories:
Additions to real estate inventories (8,904,807) (8,940,739) (34,115,795)
Capitalized interest and real estate taxes (71,027) (1,784,057) (2,816,879)
Cost of real estate inventories conveyed 9,905,620 31,147,530 22,666,851
Restricted cash (212,335) (14,317) 586,105
Accounts receivable 164,172 (598,887) 237,511
Shareholder receivable -- 548,795 (1,377,657)
Notes receivable (2,418,363) 387,592 (371,990)
Receivable from affiliate -- -- 872,090
Other assets (263,702) 973,703 (1,316,223)
Increase (decrease) in:
Trade payable and other liabilities 189,121 (1,880,818) 1,302,035
Tenant and customer deposits (109,559) (2,343,056) 1,754,552
Interest payable (351,312) (2,286,367) (66,025)
Deferred revenue 22,721 (217,934) 317,934
------------ ------------ ------------
Net cash (used in) provided by operating activities (7,420,063) 15,855,477 (7,129,788)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of fixed assets (730,718) (194,496) (13,290)
Assets acquired under capital lease (14,691) -- --
Sale of building -- -- 564,884
Cash acquired in acquisition of Terremark Centre 10,250 -- --
Cash acquired in acquisition of Grove Hill, Ltd. -- -- 935,308
------------ ------------ ------------
Net cash (used in) provided by investing activities (735,159) (194,496) 1,486,902
------------ ------------ ------------
Cash flows from financing activities:
New borrowings 17,861,701 18,136,761 26,881,503
Payments on loans (9,122,535) (37,410,591) (17,850,094)
Cash overdraft -- 44,704 --
------------ ------------ ------------
Net cash provided by (used in) financing activities 8,739,166 (19,229,126) 9,031,409
------------ ------------ ------------
Net increase (decrease) in cash 583,944 (3,568,145) 3,388,523
Cash and cash equivalents at beginning of year 2,808,033 6,376,178 2,987,655
------------ ------------ ------------
Cash and cash equivalents at end of year $ 3,391,977 $ 2,808,033 $ 6,376,178
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-11
<PAGE> 45
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
--------------------------------------------
2000 1999 1998
------------ ----------- -----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE
Non-monetary transactions:
Conversion of debt to equity
Notes payable $ -- $(3,597,474) $ --
Interest payable -- (579,219) --
Preferred stock -- 4,176,693 --
Terremark Centre acquisition
Cash and cash equivalents 10,250 -- --
Restricted cash 263,124 -- --
Accounts receivable 351,901 -- --
Other assets 1,116,653 -- --
Real estate held for sale 56,000,000 -- --
Trade payable and other liabilities (1,957,916) -- --
Interest payable (36,530) -- --
Tenant and customer deposits (333,125) -- --
Notes payable (55,414,357) -- --
Grove Hill, Ltd. acquisition
Notes payable -- -- (3,597,474)
Real estate inventories -- -- 3,597,474
------------ ----------- -----------
$ -- $ -- $ --
============ =========== ===========
Interest paid (net of amount capitalized) $ 366,707 $ 990,245 $ 1,315,377
============ =========== ===========
Taxes paid $ -- $ 320,375 $ --
============ =========== ===========
Assets acquired under capital lease $ 216,412 $ 111,654 $ --
============ =========== ===========
</TABLE>
In 2000, the Company reclassified approximately $178,000 from real estate
inventories to furniture and equipment.
The accompanying notes are an integral part of these consolidated
financial statements.
F-12
<PAGE> 46
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
-------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION
Terremark Holdings, Inc. and subsidiaries (the "Company") are engaged in
various real estate services, including management, development,
construction, sales, leasing and financing of real estate projects. The
Company was founded in 1982.
The Company's commercial and mixed use development activities include
concept development, acquisition of land, project design, equity and
financing arrangement, construction, sales and leasing. Under various
service agreements, the Company currently manages commercial and
residential property. Management activities include operations,
maintenance, leasing and brokerage services. The Company also develops and
sells condominiums and condominium hotels under its Fortune House concept.
Fortune House allows individual owners of condominium units to participate
in a hotel-style rental program while not in residence.
On April 28, 2000, the Company completed a reverse merger with AmTec, Inc.
("AmTec"), a public company. The surviving company was renamed Terremark
Worldwide, Inc. ("TWW"). As a result of the reverse merger, each share of
the Company's common stock was converted into approximately 63 shares of
TWW common stock. Stockholders' equity reflects this conversion as if it
had occurred at the beginning of each period. Prior to the AmTec merger,
the Company was solely engaged in various real estate services.
Subsequently, the Company will also be engaged in telecom services and
telecom facilities management and will report business segment information.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting principles and practices
used in the preparation of the consolidated financial statements follows.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The Company's consolidated financial statements include the Company's
wholly-owned subsidiaries. All significant intercompany balances and
transactions are eliminated in consolidation.
The accounts of Grove Hill, Ltd., whose General Partner is also a
shareholder of the Company, are also consolidated in these financial
statements. In April 1997, the Company acquired a 49.5% interest in Grove
Hill through the assumption of an approximate $3.6 million note due to a
financial institution. At the time of acquisition, the only significant
assets of Grove Hill were 32 completed condominium units held for sale. The
fair value of the liabilities assumed of approximately $25.2 million were
greater than the fair value of the assets, and as a result an impairment of
approximately $3.9 million was recorded.
F-13
<PAGE> 47
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
-------------------------------------------------------------------------------
USE OF ESTIMATES
The Company prepares its financial statements in conformity with generally
accepted accounting principles. These principles require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements to conform with current presentation.
NEW ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Derivative Instruments and Hedging
Activities," which is effective for fiscal years beginning after June 15,
2000. The Company has no derivative instruments.
REAL ESTATE INVENTORIES AND COST OF REAL ESTATE SOLD
Real estate inventories consist of completed condominiums and condominiums
under development. Real estate inventories, including capitalized interest
and real estate taxes, are carried at the lower of cost or fair value
determined by evaluation of individual projects. Acquisition, development
and other indirect costs related to acquisition and development of real
estate projects are capitalized. Interest and real estate taxes incurred
relating to the construction of condominiums are capitalized during the
active development period. The capitalized costs are relieved from
inventory on the relative sales value method for each project as the
related revenue is recognized.
The Company subcontracts construction to third parties and the construction
contracts require subcontractors to repair or replace deficiencies related
to their trade.
Whenever events or circumstances indicate that the carrying value of the
real estate inventories may not be recoverable, impairment losses are
recorded and the related assets are adjusted to their estimated fair market
value, less selling costs.
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
The Company considers all amounts held in highly liquid instruments with an
original purchased maturity of three months or less to be cash equivalents.
Cash and cash equivalents include cash balances maintained in the operating
and interest-bearing money market accounts at the Company's banks.
Restricted cash includes escrowed cash balances for tenant security and
customer purchase deposits.
F-14
<PAGE> 48
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
-------------------------------------------------------------------------------
The Company has concentrated its credit risk for cash by maintaining
deposits in banks in excess of federally insured limits. The maximum loss
that would have resulted from the risk totaled approximately $3.2 million
as of March 31, 2000 and $2.6 million as of March 31, 1999, for the excess
of the deposit liabilities reported by the banks over the amounts that
would have been covered by federal insurance. The funds are on deposit in
banks that have extended credit to the Company in excess of the amounts at
risk.
The Company's business and customer base is primarily in the Miami, Florida
area. Consequently, any significant economic downturn in this market could
have an effect on the Company's business, results of operations and
financial condition.
ALLOWANCE FOR UNCOLLECTIBLE RECEIVABLES
Management regularly evaluates factors affecting collectibility of
receivable balances. Management believes all accounts at March 31, 2000 and
1999 are collectible, therefore, no allowance for uncollectible receivables
is maintained.
FURNITURE AND EQUIPMENT, NET
Furniture and equipment include acquired assets and those accounted for
under a capital lease. These assets are depreciated on a straight-line
method over their estimated remaining useful lives, or term of the lease,
as follows:
<TABLE>
<S> <C>
Computer software 3 years
Furniture, fixtures and equipment 5 years
Leasehold improvements 5 years
Capital lease assets 3-5 years
</TABLE>
TRADE PAYABLE AND OTHER LIABILITIES
Trade payable and other liabilities includes liabilities incurred during
the normal course of business and obligations under capital leases and
license fees payable.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," effective January 1, 1998. At March 31,
2000, 1999 and 1998, the Company had no comprehensive income.
REVENUE AND PROFIT RECOGNITION
Revenues from construction and development activities are recognized on a
completed contract basis. The related profit is recognized in full when
collectibility of the sale price is reasonably assured and the earnings
process is substantially complete. Revenues and expenses related to the
leasing, management, and financing activities are recognized at the time
service is provided.
F-15
<PAGE> 49
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
-------------------------------------------------------------------------------
BASIC AND DILUTED (LOSS) EARNINGS PER COMMON SHARE
The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("EPS"). Basic EPS equals net income divided by
the number of weighted average common shares. Diluted EPS includes
potentially dilutive securities such as stock options and convertible
securities. The effect of shares issuable upon exercise of convertible
preferred stock is anti-dilutive, therefore diluted earnings per share is
not presented in a comparative format.
3. REAL ESTATE INVENTORIES
Real estate inventories are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Work in progress $ 8,566,697 $ --
Completed inventories 3,230,609 14,662,428
------------ ------------
11,797,306 14,662,428
Less: impairment allowance -- (1,774,222)
------------ ------------
$ 11,797,306 $ 12,888,206
============ ============
</TABLE>
F-16
<PAGE> 50
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
-------------------------------------------------------------------------------
4. NOTES RECEIVABLE
Notes receivable consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
2000 1999
---------- ----------
<S> <C> <C>
$3,000,000 million line of credit to Spectrum
Telecommunications Corp., $1,000,000 and $-0-
principal outstanding at March 31, 2000 and 1999,
respectively; interest accrues annually at 10%. $1,002,740 $ --
Notes receivable from AmTec, Inc.,
$1,125,000 principal, interest accrues annually at 10%
Interest and principal due July 1, 2000 1,162,705 --
Note receivable from a corporation, $200,000
principal, interest accrues annually at 8%
Interest and principal due upon demand. 220,647 207,974
Note receivable from a corporation, $360,000
principal collateralized by second lien on
condominium units, interest accrues annually at 9%
Interest and principal due August 27, 2002. 369,321 --
Other notes receivable -- 129,076
---------- ----------
$2,755,413 $ 337,050
========== ==========
</TABLE>
On March 21, 2000, the Company entered into an option agreement with
Spectrum Telecommunications Corp. ("Spectrum") to acquire substantially all
of its common stock. On June 26, 2000, the Company agreed to exercise its
option for 80% of Spectrum's common stock in exchange for (a) three million
shares of TWW and (b) forgiveness of the outstanding balance of the
Company's line of credit to Spectrum.
The Company has a further option for a period of 18 months from the date of
exercise to acquire the balance of Spectrum's capital stock in exchange for
$10.0 million or 1.5 million shares of Fusion Telecommunications
International, Inc., a related party through common ownership.
F-17
<PAGE> 51
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
-------------------------------------------------------------------------------
5. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
2000 1999
---------- ----------
<S> <C> <C>
Prepaid expenses and other $1,057,340 $ 545,329
Loan costs, net of accumulated
amortization of $1,095,595 and $957,846 368,946 207,060
Deferred acquisition costs 410,591 --
Reimbursable construction costs and other expenses 140,496 --
---------- ----------
$1,977,373 $ 752,389
========== ==========
</TABLE>
Loan costs, principally loan origination and related fees, are deferred and
amortized as interest expense over the life of the respective loan using
the straight-line method, which approximates the effective interest method.
6. REAL ESTATE HELD FOR SALE
On December 22, 1999, the Company acquired for approximately $56.0 million
all partnership interests of Terremark Centre, Ltd. ("TCL"). TCL is a
single purpose entity and is fee simple owner of a 294,000 square foot 21
story Class A office building with 1100 parking spaces and 16 townhouses on
approximately 3.2 acres known as Terremark Centre, located in Coconut
Grove, Florida. The acquisition was financed through assumption of a first
mortgage of approximately $28.3 million on Terremark Centre and issuance of
approximately $27.1 million in purchase money notes to the sellers.
F-18
<PAGE> 52
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
-------------------------------------------------------------------------------
7. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
MARCH 31
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Note payable to a commercial lender, collateralized by
a first mortgage on real estate. Principal payable in
installments as condominium units are sold. Interest
accrues at prime, payable through an interest
reserve. Principal and unpaid interest due
November 2000, with an option for two six month
extensions. Guaranteed by majority shareholder. $ 2,681,998 $ 7,217,557
Note payable to a commercial lender, payable in
installments as condominiums are sold with
minimum annual principal payments of $1.2 million
The loan matures in August 2002. Interest accrues
at 1% over prime, payable monthly. Collateralized
by condominiums. Guaranteed by majority shareholder. -- 1,124,999
Note payable to a corporation in seventy-five monthly
installments of principal and interest beginning
January 1, 1999. Interest accrues at 9.5%. 272,397 288,000
$15 million line of credit facility with a financial
institution, collateralized by a first mortgage on real
estate and certain ownership interests in the Company
held by the majority shareholder co-borrower
Interest accrues at 1% over prime, payable monthly
Outstanding balance and unpaid accrued interest due
March 6, 2001. 14,631,700 --
Note payable to a financial institution, collateralized by
a first mortgage on Terremark Centre and all future
rents of the property. Principal and interest payable
monthly based on a 20-year amortization at 7.74% until
May 15, 2001 and at an adjustable rate thereafter
Remaining principal and interest due the earlier of on
demand or May 15, 2006. 28,100,084 --
Notes payable to a corporation, collateralized by the
partnership interests of Terremark Centre, Ltd.
Principal, together with the greater of (a) all accrued
and unpaid interest at a rate of 7%, beginning
December 22, 1999 or (b) a minimum interest
payment of $1,000,000, due upon
sale of Terremark Centre. 27,097,900 --
----------- -----------
$72,784,079 $ 8,630,556
=========== ===========
</TABLE>
F-19
<PAGE> 53
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
-------------------------------------------------------------------------------
In June 2000, the Company amended its $15.0 million line of credit to
reduce the maximum amount to $7.5 million. In addition, the shareholder was
released as coborrower and the Company ownership interests held by the
shareholder were released as collateral.
Interest expense of $804,785, $1,493,539 and $1,210,191, net of amounts
capitalized to real estate inventories totaling $41,038, $1,657,948 and
$2,759,694, was recognized in fiscal years 2000, 1999 and 1998,
respectively.
As of March 31, 2000, the future maturities of the Company's borrowing for
each of the subsequent five years and thereafter are as follows:
<TABLE>
<S> <C>
2001 $ 72,532,784
2002 25,206
2003 27,707
2004 30,457
2005 33,481
Thereafter 134,444
------------
Total $ 72,784,079
============
</TABLE>
8. PREFERRED STOCK
On March 31, 1999, the holders of $3,597,474 of debt and $579,219 in
accrued interest payable converted their debt and the accrued interest into
4,176,693 shares of preferred stock. The $1 par value preferred stock has a
10% cumulative preferred dividend, payable annually commencing March 31,
2000. At March 31, 2000, there were cumulative unpaid dividends of
$417,669. During April 2000, the preferred stock was acquired by certain
members of Terremark's management. Upon consummation of the AmTec merger,
the preferred shares were converted into 7,853,985 shares of TWW common
stock.
F-20
<PAGE> 54
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
-------------------------------------------------------------------------------
9. INCOME TAXES
The deferred tax provision consists of income taxes relating to
differences between the tax bases of assets and liabilities and their
financial reporting amounts.
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Excess of tax basis over book basis on real
estate investment $ -- $ 31,934
Charitable contributions 199,704 197,126
Deferred revenue (percentage of completion vs.
completed contract) 315,292 309,547
Allowances and other 166,938 --
Net operating loss carryforwards 2,745,673 694,178
Tax credits 245,780 245,780
----------- -----------
Total deferred tax assets 3,673,387 1,478,565
----------- -----------
Valuation allowance (3,553,499) (1,371,641)
----------- -----------
Deferred tax liability:
Excess of book basis over tax basis on real
estate investment (109,758) --
Other (10,130) --
----------- -----------
Total deferred tax liability (119,888) --
----------- -----------
Net deferred tax asset $ -- $ 106,924
=========== ===========
</TABLE>
The Company provides a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized. The Company
has established a valuation allowance against deferred tax assets of
$3,553,499 and $1,371,641 as of March 31, 2000 and 1999, respectively
since the company has a history of operating losses and in the near term
does not expect taxable income. Accordingly, the deferred tax asset will
likely not be realized.
As of March 31, 2000, the Company had federal and state net operating loss
carryforwards of approximately $7.2 million, which begin to expire in
2019. Utilization of these net operating losses may be limited if there is
a significant change in ownership.
F-21
<PAGE> 55
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
-------------------------------------------------------------------------------
The reconciliation between the statutory income tax rate and the effective
income tax rate on pre-tax income (loss) is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
-------------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Rate reconciliation
Statutory rate (34.0)% 34.0% 34.0%
State income taxes, net of federal income tax benefit (3.3)% 3.0% 3.0%
Other permanent differences 2.7% -- --
Increase (decrease) in valuation allowance 36.4% (37.0)% (37.0)%
----- ----- -----
Effective tax rate 1.8% 0.0% 0.0%
===== ===== =====
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
LEASING ACTIVITIES
The Company leases space for its property management operations, office
equipment and furniture under operating leases. Equipment is also leased
under a capital lease, which is summarized as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
TERM 2000 1999
------- ---------- ----------
<S> <C> <C> <C>
Furniture and equipment 5 years $ 111,654 $ 111,654
Other equipment 3 years 216,412 --
---------- ----------
328,066 111,654
Less: accumulated amortization 68,462 11,165
---------- ----------
Net capitalized leased asset $ 259,604 $ 100,489
========== ==========
</TABLE>
F-22
<PAGE> 56
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
-------------------------------------------------------------------------------
At March 31, 2000, future minimum lease payments for each of the
succeeding five years under non-cancellable operating and capital leases
having a remaining term in excess of one year are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- -----------
<S> <C> <C>
2001 $ 109,208 $ 510,131
2002 109,208 507,500
2003 63,927 471,150
2004 9,335 445,000
2005 -- 439,800
---------- -----------
Total minimum lease payments 291,678 $ 2,373,581
===========
Amount representing interest 38,055
----------
Present value of net minimum lease payments $ 253,623
==========
</TABLE>
Operating lease expense amounted to $72,833, $37,565 and $24,984 for
fiscal years 2000, 1999 and 1998, respectively.
LITIGATION
The Company is a defendant in various lawsuits arising in the ordinary
course of business. Management, after consultation with its legal counsel,
believes its positions to be meritorious. However, in the event that
decisions are adverse, management does not believe the outcome of these
matters would have a material effect on the consolidated financial
statements.
CONTINGENT PROFIT
In conjunction with the August 1998 sale of its interest in certain real
estate acquired in January 1998, the Company entered into an agreement
with the buyer wherein the Company is entitled to an additional contingent
payment of $2.75 million plus a 10% cumulative return on the payment. The
fee is due when the buyer has recovered its invested capital plus a 10%
return. The Company also has a right to share in additional funds
distributed above these returns. While the Company recognized the gain
from the sale, it has not recognized any income under the contingent
payment provisions as of March 31, 2000.
OTHER
The Company has unconditionally guaranteed payment of a first mortgage on
the remaining three condominium units in the Grove Hill project sold in
December 1999. The purchaser assumed the existing first mortgage of
approximately $740,000, paid $100,000 in cash and provided the Company
with a $360,000 second mortgage. The Company recognized a $33,316 loss on
the sale. As of March 31, 2000, $740,000 is outstanding under the first
mortgage.
F-23
<PAGE> 57
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
-------------------------------------------------------------------------------
11. RELATED PARTY TRANSACTIONS
Due to the nature of the following relationships, the terms of the
respective agreements might not be the same as those which would result
from transactions among wholly unrelated parties. All significant related
party transactions require approval by the Company's board of directors.
TERREMARK CENTRE
In 1994, the Company entered into a property management and real estate
brokerage services agreement with Terremark Centre, Ltd. whose Partners
share an officer with the Company. The Company recorded as income,
management fees of $232,240, $320,964 and $311,791 and brokerage
commissions of $764,412, $456,789 and $133,517 in fiscal 2000, 1999 and
1998, respectively.
In January 2000, the Company entered into a lease agreement with Terremark
Centre, Ltd. for office space. The lease commences in April 2000, and the
Company's aggregate commitment over the five year life is approximately
$2.2 million. Prior to commencement of the lease, the Company occupied
space in Terremark Centre rent free in connection with providing property
management and real estate brokerage services.
DEVELOPMENT FEES
The Company recorded development fee income in the amount of $20,000 from
an affiliate and $120,000 from a shareholder during the years ended March
31, 1999 and 1998, respectively.
MANAGEMENT FEES
Certain officers and executives of the Company own partnership interests
in two office buildings. The Company provides management services to both
partnerships for a fee. Management fee revenues totaled $119,416, $243,000
and $0 for the years ended March 31, 2000, 1999 and 1998, respectively.
In fiscal 2000 and 1999, the Company provided management services to the
Fortune House Condominium Association. The Company recorded as income
$50,000 and $30,780 relating to the services performed.
F-24
<PAGE> 58
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
-------------------------------------------------------------------------------
12. SUBSEQUENT EVENTS
MERGER
On April 28, 2000, the Company merged with and into AmTec, a publicly
traded international telecommunications and services company, pursuant to
an agreement dated November 24, 1999 and approved by the stockholders of
AmTec on April 28, 2000 ("AmTec merger").
The AmTec merger will be accounted for using the purchase method of
accounting, with the Company treated as the acquirer for accounting
purposes. As a result, the assets and liabilities of the Company will be
recorded at historical values and the assets and liabilities of AmTec will
be recorded at their estimated fair values at the date of the merger. The
purchase price is based on the market capitalization of AmTec using $0.99
per AmTec common share, the average trading price of AmTec shares, for a
period immediately before and after the proposed announcement on November
9, 1999 of the AmTec merger, plus certain estimated merger related costs.
In periods subsequent to the merger, historical financial information of
Terremark will be that of the surviving corporation.
The following unaudited condensed results of operations for the years
ended March 31, 2000 and 1999 were prepared assuming the AmTec merger
occurred on April 1, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
MARCH 31,
---------------------------------
2000 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
Revenue $ 15,390,000 $ 44,456,000
Net loss $ (17,868,000) $ (12,956,000)
Basic and diluted net loss per share (0.10) (0.07)
</TABLE>
These amounts include AmTec's actual results for the years ended March 31,
2000 and 1999, respectively. In preparing the pro forma information,
various assumptions were made. This information is not necessarily
indicative of what would have occurred had these transactions occurred as
of April 1, 1999 and 1998, nor is it indicative of the results of future
combined operations.
SALE OF REAL ESTATE HELD FOR SALE
In April 2000, the Company sold Terremark Centre for approximately $58.8
million, and certain assets and liabilities related to the building were
transferred to the purchaser at closing. No gain or loss was recognized on
its sale. The cash proceeds were used to repay approximately $55.8 in
related debt, including a first mortgage amounting to $28.8 million and
approximately $27.0 million in other debt collateralized by the Terremark
Centre. Pursuant to a related agreement dated November 24, 1999, TWW sold
a 35.0% ownership interest in the merged company for $28.1 million
immediately subsequent to the merger.
F-25
<PAGE> 59
TERREMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
-------------------------------------------------------------------------------
SALE OF COMMON STOCK
In April 2000, the TWW sold 68,722,349 shares of common stock to a third
party for approximately $28.1 million. The third party was the previous
owner of Terremark Centre.
INVESTMENTS
In April 2000, the Company purchased, for $3.5 million, a 26.9% ownership
interest in Boca Technology Center, LLC, an entity formed for the purpose
of acquiring and operating the property formerly known as Blue Lake
Technology Center, a 1,770,000 square foot mixed use facility in Boca
Raton, Florida.
In May 2000, TWW acquired Telecom Routing Exchange Developers, Inc., a
corporation holding rights to develop and manage facilities catering to
the telecommunications industry, in exchange for eight million shares of
TWW common stock.
In June 2000, TWW acquired all of the outstanding stock of Post Shell
Technology Contractors, Inc., a provider of construction services, in
exchange for three million shares of TWW common stock.
OTHER
In May 2000, TWW entered into an agreement to lease approximately 9,887
rentable square feet of office space at 405 Lexington Avenue, New York,
New York commencing in fiscal year 2001. TWW's aggregate commitment over
the lease's ten year life is approximately $6.2 million and is to be
partially secured by a letter of credit.
In June 2000, the Board of Directors of the Company adopted, subject to
stockholder approval, the 2000 stock option plan. Prior to the AmTec
merger, when the AmTec 1995 and 1996 stock option plans were adopted, the
Company did not have a plan.
* * * * *
F-26
<PAGE> 60
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000 AND MARCH 31, 2000 AND
FOR THE THREE-MONTH PERIODS ENDED
JUNE 30, 2000 AND 1999
F-27
<PAGE> 61
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
2000 2000
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
ASSETS
Real estate inventories $ 11,873,046 $ 11,797,306
Cash and cash equivalents 11,281,823 3,391,977
Restricted cash 74,427 506,776
Accounts receivable 3,868,042 777,307
Investment in affiliate 1,289,000 --
Investments in unconsolidated entities 6,003,799 --
Option agreements 8,900,000 --
Notes receivable 3,146,554 2,755,413
Furniture and equipment, net of accumulated depreciation
of $199,348 and $133,943, respectively 1,225,322 1,010,735
Other assets 2,171,584 1,977,373
Identifiable intangible assets and goodwill, net of accumulated
amortization of $1,489,611 and $-0-, respectively 58,224,918 --
Real estate held for sale -- 55,781,259
------------- -------------
Total assets $ 108,058,515 $ 77,998,146
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 5,881,961 $ 72,784,079
Trade payable and other liabilities 6,128,362 4,083,039
Interest payable 143,098 72,914
Tenant and customer deposits 3,080 458,962
Deferred revenue 122,459 122,721
------------- -------------
12,278,960 77,521,715
------------- -------------
Convertible preferred stock: $1 par value, -0- and 4,176,693 shares
authorized, issued and outstanding at June 30, 2000 and -- 4,176,693
March 31, 2000, respectively
Series G convertible preferred stock: $.001 par value, 20 and -0-
shares authorized, issued and outstanding at June 30, 2000
and March 31, 2000, respectively 1 --
Common stock: $.001 par value, 300,000,000 shares authorized;
196,574,179 and 70,685,845 shares issued and outstanding at
June 30, 2000 and March 31, 2000, respectively 196,574 70,686
Paid in capital 111,118,305 7,954,010
Retained deficit (17,222,363) (11,724,958)
Warrants 1,687,038 --
Commitments and contingencies (Note 13)
------------- -------------
95,779,555 476,431
------------- -------------
Total liabilities and stockholders' equity $ 108,058,515 $ 77,998,146
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-28
<PAGE> 62
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 30,
-----------------------------------
2000 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
Revenues
Real estate sales $ 654,475 $ 4,681,566
Commission income 332,781 121,884
Development fees 340,000 331,667
Management fees 354,891 255,010
Construction fees 142,635 84,822
------------- -------------
Operating revenues 1,824,782 5,474,949
------------- -------------
Expenses
Cost of real estate sold 541,479 3,541,575
Construction expenses 126,337 57,271
General and administrative expenses 3,267,073 1,857,956
Sales and marketing expenses 799,704 568,528
Depreciation and amortization 1,594,072 17,340
------------- -------------
Operating expenses 6,328,665 6,042,670
------------- -------------
(Loss) income from operations (4,503,883) (567,721)
------------- -------------
Other income (expense)
Equity in losses of affiliate (173,555) --
Interest income 163,257 4,475
Interest expense (245,466) (231,375)
Other (expense) income (702,952) 59,940
Dividend on preferred stock (34,806) (104,417)
------------- -------------
Total other expense (993,522) (271,377)
------------- -------------
Net loss $ (5,497,405) $ (839,098)
============= =============
Basic and diluted loss per common share $ (0.04) $ (0.01)
============= =============
Weighted average common shares outstanding 152,996,230 70,685,845
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-29
<PAGE> 63
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
---------------------------------------------------------------------------------------------
COMMON STOCK
PAR VALUE $.001
---------------------------- ADDITIONAL
PREFERRED ISSUED PAID-IN RETAINED
STOCK SHARES AMOUNT CAPITAL WARRANTS DEFICIT
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 2000 $ 4,176,693 70,685,845 $ 70,686 $ 7,954,010 $ -- $(11,724,958)
Effect of AmTec merger:
Conversion of preferred stock (4,176,693) 7,853,985 7,854 4,168,839
Assumption of AmTec equity 1 38,232,000 38,232 46,923,840 1,687,038
Sale of common stock 68,722,349 68,722 28,054,203
Common stock issued in
acquisitions 11,000,000 11,000 23,919,000
Exercise of stock options 80,000 80 98,413
Net loss (5,497,405)
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 2000 $ 1 196,574,179 $ 196,574 $111,118,305 $ 1,687,038 $(17,222,363)
============ =========== ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-30
<PAGE> 64
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 30,
-----------------------------------
2000 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,497,405) $ (839,098)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities
Depreciation 61,433 17,340
Amortization of loan costs to interest expense 38,902 31,865
Amortization of capital lease 5,583 --
Amortization of intangible assets and goodwill 1,527,056 --
(Increase) decrease in:
Real estate inventories:
Additions to real estate inventories (527,750) (926,986)
Capitalized interest and real estate taxes (73,963) --
Cost of real estate inventories conveyed 525,973 3,541,562
Restricted cash 462,349 29,176
Accounts receivable (527,393) 100,251
Notes receivable (391,141) 28,403
Other assets (524,909) (23,386)
(Decrease) increase in:
Trade payable and other liabilities (2,002,118) 143,407
Customer deposits -- (72,600)
Interest payable 70,184 129,937
Tenant and customer deposits (455,882) --
Deferred revenue (262) --
------------- -------------
Net cash (used in) provided by operating activities (7,309,343) 2,159,871
------------- -------------
Cash flows from investing activities:
Purchase of fixed assets (131,654) (30,302)
Investment in unconsolidated entities (3,829,065) --
Proceeds from sale of Terremark Centre 55,781,259 --
Cash acquired in acquisitions 2,064,273 --
------------- -------------
Net cash provided by (used in) investing activities 53,884,813 (30,302)
------------- -------------
Cash flows from financing activities:
New borrowings 1,500,000 --
Payments on loans (68,407,042) (1,752,344)
Exercise of stock options 98,492 --
Sale of common stock 28,122,926 --
------------- -------------
Net cash used in financing activities (38,685,624) (1,752,344)
------------- -------------
Net increase in cash 7,889,846 377,225
Cash and cash equivalents at beginning of period 3,391,977 2,808,033
------------- -------------
Cash and cash equivalents at end of period $ 11,281,823 $ 3,185,258
============= =============
SUPPLEMENTAL DISCLOSURE:
Interest paid (net of amount capitalized) $ 175,282 $ 69,573
============= =============
Taxes paid $ -- $ --
------------- -------------
Assets acquired under capital lease $ -- $ --
------------- -------------
</TABLE>
F-31
<PAGE> 65
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
1. BUSINESS AND ORGANIZATION
Terremark Worldwide, Inc. and its subsidiaries (the "Company" or
"TWW") are engaged in telecom services, telecom facilities management
and real estate services. The Company was founded in 1982. On April
28, 2000, the predecessor to the Company, Terremark Holdings, Inc.
("THI"), completed a reverse merger with AmTec, Inc. ("AmTec"), a
public company. Historical information of the surviving company is
that of THI. As a result of the reverse merger, each share of the
Company's common stock was converted into approximately 63 shares of
TWW common stock. Stockholders' equity reflects this conversion as if
it had occurred at the beginning of each period. Prior to the reverse
merger, the Company was solely engaged in various real estate
services.
Through an equity investment and other alliances, the Company provides
long distance international telecommunication services, including
telephony and data, to Asia and develops Internet Protocol (IP) fax
services in Hong Kong, Guangdong Province of the People's Republic of
China and Taiwan.
The Company has combined its expertise in telecommunications and real
estate operations by developing and managing facilities used by large
telecommunications companies and internet service providers to house
equipment and operate their business. Through its 80% owned
subsidiary, Coloconnection, Inc., the Company plans to lease certain
space within these telecommunications facilities for build-out and
sub-leasing to smaller carriers, internet service providers and web
hosting companies.
The Company's traditional commercial and mixed use development
activities include concept development, acquisition of land, project
design, equity and financing arrangement, construction, sales and
leasing. Under various service agreements, the Company currently
manages commercial and residential property. Management activities
include operations, maintenance, leasing and brokerage services. The
Company also develops and sells condominiums and condominium hotels
under its Fortune House concept. Fortune House allows owners of
condominium units to participate in a hotel-style rental program while
not in residence.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting principles and practices used
by the Company in preparing its consolidated financial statements
follows.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements at June 30, 2000 are unaudited
and reflect all adjustments which are, in the opinion of management,
necessary for a fair presentation of the financial position and
operating results for the interim period. All of the adjustments are
of a normal recurring nature. The results of operations for the three
months ended June 30, 2000 are not necessarily indicative of the
results for the entire year ending March 31, 2001. The Company's
consolidated financial statements include the accounts of the
Company's wholly-owned subsidiaries and an 80% owned subsidiary. All
significant intercompany balances and transactions are eliminated in
consolidation.
F-32
<PAGE> 66
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
USE OF ESTIMATES
The Company prepares its financial statements in conformity with
generally accepted accounting principles. These principles require
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior periods'
financial statements to conform with current presentation.
NEW ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Derivative
Instruments and Hedging Activities," which is effective for fiscal
years beginning after June 15, 2000. The Company has no derivative
instruments.
REAL ESTATE INVENTORIES AND COST OF REAL ESTATE SOLD
Real estate inventories consist of completed condominiums and
condominiums under development. Real estate inventories, including
capitalized interest and real estate taxes, are carried at the lower
of cost or fair value determined by evaluation of individual projects.
Acquisition, development and other indirect costs related to
acquisition and development of real estate projects are capitalized.
Interest and real estate taxes incurred relating to the construction
of condominiums are capitalized during the active development period.
The capitalized costs are relieved from inventory on the relative
sales value method for each project as the related revenue is
recognized.
The Company subcontracts construction to third parties and the
construction contracts require subcontractors to repair or replace
deficiencies related to their trade.
Whenever events or circumstances indicate that the carrying value of
the real estate inventories may not be recoverable, impairment losses
are recorded and the related assets are adjusted to their estimated
fair market value, less selling costs.
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
The Company considers all amounts held in highly liquid instruments
with an original purchased maturity of three months or less to be cash
equivalents. Cash and cash equivalents include cash balances
maintained in the operating and interest-bearing money market accounts
at the Company's banks. Restricted cash includes escrowed cash
balances for tenant security and customer purchase deposits.
The Company has concentrated its credit risk for cash by maintaining
deposits in banks in excess of federally insured limits. The maximum
loss that would have resulted from the risk totaled
F-33
<PAGE> 67
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
approximately $11.1 million as of June 30, 2000 and $3.1 million as of
June 30, 1999, for the excess of the deposit liabilities reported by
the banks over the amounts that would have been covered by federal
insurance.
ALLOWANCE FOR UNCOLLECTIBLE RECEIVABLES
Management regularly evaluates factors affecting collectibility of
receivable balances. Management believes all accounts at June 30, 2000
and March 31, 2000 are collectible, therefore, no allowance for
uncollectible receivables is maintained.
INVESTMENT IN AFFILIATE
The Company accounts for its investment in 50% owned subsidiary
IP.Com, LLC using the equity method of accounting, as minority
shareholders have substantive participating rights under the joint
venture contract. Under the equity method, the investment is carried
at cost of acquisition, plus the Company's equity in undistributed
earnings or losses since acquisition. The excess of the purchase price
over the Company's proportionate ownership interest in identifiable
net assets of IP.Com is amortized on a straight-line method over a
period of five years. Reserves are provided where management
determines that the investment or equity in earnings is not
realizable. The Company is currently evaluating its strategic
alternatives for IP.Com's operations.
INVESTMENTS IN UNCONSOLIDATED ENTITIES
The Company accounts for its investments in telecommunications
facilities using the cost method of accounting. Under the cost method,
the investment is carried at cost of acquisition.
The Company intends to liquidate its investment in Hebei Equipment and
accordingly carries this investment at liquidation value. Reserves are
provided where management determines that the net carrying amount of
an investment may not be recoverable.
OPTION AGREEMENTS
Option agreements are carried at the lower of cost or fair market
value and represent options to acquire up to 50% ownership interests
in certain telecommunications entities.
FURNITURE AND EQUIPMENT, NET
Furniture and equipment, net includes acquired assets and those
accounted for under a capital lease. Purchased assets are recorded at
cost and depreciated on the straight-line method over their estimated
remaining useful lives. Capital leased assets are recorded at the net
present value of minimum lease payments and are depreciated on the
straight-line method over the term of the lease, as follows:
<TABLE>
<S> <C>
Computer software 3 years
Furniture, fixtures and equipment 5 years
Leasehold improvements 5 years
Capital lease assets 3-5 years
</TABLE>
F-34
<PAGE> 68
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
INTANGIBLE ASSETS AND GOODWILL
Identifiable intangible assets consist primarily of certain rights,
customer relationships and contracts. The identifiable intangible
assets are amortized on the straight-line method over periods ranging
from one to five years. Goodwill represents the excess of the purchase
price over the fair value of identifiable net assets acquired in
conjunction with business acquisitions and is amortized on the
straight-line basis over a five year period. (See Note 3.)
LONG LIVED ASSETS
The Company evaluates long-lived assets and identifiable intangibles
for impairment whenever events or changes in circumstances indicate
that the net carrying amount may not be recoverable. When such events
occur, the Company measures impairment by comparing the carrying value
of the long-lived asset to the estimated undiscounted future cash
flows expected to result from the use of the assets and their
estimated remaining lives. Impairment reserves are provided for the
excess of the carrying amount of an asset exceeds the fair market
value of the asset. The Company determined that, as of June 30, 2000
and March 31, 2000, there had been no impairment in the carrying value
of its long-lived assets.
TRADE PAYABLE AND OTHER LIABILITIES
Trade payable and other liabilities includes liabilities incurred
during the normal course of business and obligations under capital
leases and license fees payable.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," effective January 1, 1998. At
June 30, 2000 and 1999, the Company had no comprehensive income.
REVENUE AND PROFIT RECOGNITION
Revenues from construction and development activities are recognized
on a completed contract basis. The related profit is recognized in
full when collectibility of the sale price is reasonably assured and
the earnings process is substantially complete. Revenues and expenses
related to leasing, management, and financing activities are
recognized at the time service is provided.
LOSS PER SHARE
The Company has adopted Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("EPS"). Basic EPS equals net income
divided by the number of weighted average common shares. Diluted EPS
includes potentially dilutive securities such as stock options and
convertible securities. The effect of shares issuable upon exercise of
convertible preferred stock, warrants and stock options is
anti-dilutive, therefore diluted earnings per share is not presented
in a comparative format.
F-35
<PAGE> 69
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
3. ACQUISITIONS
AMTEC, INC.
On April 28, 2000, THI merged with and into AmTec, a publicly traded
international telecommunications and services company, pursuant to an
agreement dated November 24, 1999 and approved by the stockholders of
AmTec on April 28, 2000 ("AmTec merger").
The AmTec merger was accounted for using the purchase method of
accounting, with THI treated as the acquirer for accounting purposes.
As a result, the assets and liabilities of THI are recorded at
historical values and the assets and liabilities of AmTec are recorded
at their estimated fair values at the date of the merger. The purchase
price was based on market capitalization of AmTec using $0.99 per
AmTec common share, the average closing price of AmTec shares, for a
period immediately before and after the proposed announcement on
November 9, 1999 of the AmTec merger, plus certain merger related
costs.
The following unaudited condensed results of operations for the three
months ended June 30, 2000 and 1999 were prepared assuming the merger
occurred on April 1, 2000 and 1999, respectively.
<TABLE>
<CAPTION>
FOR THE THEE MONTHS ENDED
JUNE 30,
-----------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Revenue $ 1,825,000 $ 5,475,000
Net loss $ (6,343,000) $ (3,500,000)
Basic and diluted net loss per share $ (0.03) $ (0.02)
</TABLE>
The amounts for the three months ended June 30, 2000 include AmTec's
actual results for the period April 1, 2000 to April 28, 2000. The
amounts for the three months ended June 30, 1999 include AmTec's
actual results for the three months ended June 30, 1999. In preparing
the pro forma information, various assumptions were made. This
information is not necessarily indicative of what would have occurred
had these transactions occurred as of April 1, 2000 and 1999, nor is
it indicative of the results of future combined operations.
TELECOM ROUTING EXCHANGE DEVELOPERS, INC.
On May 31, 2000, the Company acquired Telecom Routing Exchange
Developers, Inc. ("T-Rex"), a corporation holding rights to develop
and manage facilities catering to the telecommunications industry, in
exchange for eight million shares of common stock. Since the Company
was a non-public entity at the time the AmTec merger was announced and
the terms were conditional on the consummation of the AmTec merger,
the purchase price was based on the closing price of the Company's
common stock of $1.94 per common share on the acquisition date. The
effect of this transaction on the Company's consolidated financial
statements was not material.
F-36
<PAGE> 70
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
POST SHELL TECHNOLOGY CONTRACTORS, INC.
On June 23, 2000, the Company acquired all of the outstanding stock of
Post Shell Technology Contractors, Inc. ("Post Shell"), a provider of
construction services, in exchange for three million shares of common
stock. The acquisition was accounted for using the purchase method of
accounting. The purchase price was based on the market capitalization
of the Company using an average closing price of $2.81 per common
share for a period immediately before and after the announcement of
the acquisition on June 26, 2000. The effect of this transaction on
the Company's consolidated financial statements was not material.
Acquisitions during the three month period ended June 30, 2000 are
summarized as follows:
<TABLE>
<CAPTION>
AMTEC T-REX POST SHELL
------------ ------------ ------------
<S> <C> <C> <C>
Assets:
Cash and cash equivalents $ 1,508,803 $ 248,210 $ 307,260
Restricted cash -- 30,000 --
Accounts receivable -- 238,322 2,325,020
Investments and option agreements 12,228,209 172,970 --
Notes receivable 344,438 -- --
Furniture and equipment 48,355 46,038 55,556
Other assets 279,143 61,275 17,785
Identifiable intangible assets -- 15,785,558 1,283,000
Goodwill 35,519,223 -- 7,126,748
------------ ------------ ------------
Total assets assumed $ 49,928,171 $ 16,582,373 $ 11,115,369
------------ ------------ ------------
Liabilities
Notes payable $ -- $ -- $ 4,924
Trade payable and other liabilities 479,060 1,082,373 2,680,445
------------ ------------ ------------
Total liabilities assumed 479,060 1,082,373 2,685,369
Equity assumed 48,649,111 -- --
Issuance of common stock -- 15,500,000 8,430,000
Estimated merger costs 800,000 -- --
------------ ------------ ------------
$ 49,928,171 $ 16,582,373 $ 11,115,369
------------ ------------ ------------
</TABLE>
Some allocations are based on studies and valuations which are being
finalized. Management does not believe that the final purchase price
allocation will produce materially different results than those
reflected herein.
F-37
<PAGE> 71
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
4. REAL ESTATE INVENTORIES
Real estate inventories are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
2000 2000
------------- -------------
(UNAUDITED)
<S> <C> <C>
Work in progress $ 9,162,340 $ 8,566,697
Completed inventories 2,710,706 3,230,609
------------- -------------
$ 11,873,046 $ 11,797,306
------------- -------------
</TABLE>
5. INVESTMENTS IN UNCONSOLIDATED ENTITIES
The Company has a 70% ownership interest in Hebei Equipment. Since the
Company intends to dispose of its interest, the investment is carried
at its estimated $1,828,000 liquidation value.
In April 2000, the Company purchased, for $3.5 million, a 26.9%
ownership interest in Boca Technology Center, LLC, an entity formed
for the purpose of acquiring and operating the property formerly known
as Blue Lake Technology Center, a 1,770,000 square foot mixed use
facility in Boca Raton, Florida.
In March 2000, the Company purchased, for $447,930, a 19.8% interest
in Cleveland Technology Center, LLC, an entity formed for the purpose
of acquiring and operating the property formerly known as The
Cleveland Technology Center, a mixed use facility in Cleveland, Ohio.
6. OPTION AGREEMENTS
The Company has an option to acquire up to 50% ownership interest in
IXS.NET, a private IP fax service provider in Asia. The Company valued
this option at $2.4 million in the AmTec merger. The Company has an
option to acquire 30% of a newly formed entity which intends to
provide value-added telecommunications services in China. The Company
valued this option at $6.5 million in the AmTec merger.
F-38
<PAGE> 72
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
7. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
2000 2000
----------- -----------
(UNAUDITED)
<S> <C> <C>
Prepaid expenses and other $ 979,788 $ 1,057,340
Loan costs, net of accumulated
amortization of $1,203,980 and $1,095,595 260,561 368,946
Prepaid investment costs 830,802 410,591
Reimbursable construction costs and other expenses 100,433 140,496
----------- -----------
$ 2,171,584 $ 1,977,373
----------- -----------
</TABLE>
8. REAL ESTATE HELD FOR SALE
In April 2000, the Company sold its real estate held for sale,
Terremark Centre, for approximately $58.8 million, and certain assets
and liabilities related to the building were transferred to the
purchaser at closing. No gain or loss was recognized on its sale. The
cash proceeds were used to repay approximately $55.8 million in
related debt.
F-39
<PAGE> 73
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
9. NOTES RECEIVABLE
Notes receivable consist of the following:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
2000 2000
------------ ------------
(UNAUDITED)
<S> <C> <C>
$3,000,000 million line of credit to Spectrum
Telecommunications Corp., $2,500,000 and
$1,000,000 principal outstanding at June 30, 2000 and
March 31, 2000, respectively, interest accrues
annually at 10% $ 2,544,520 $ 1,002,740
Notes receivable from AmTec, Inc.,
$1,125,000 principal, interest accrues annually at 10%
Interest and principal due July 1, 2000 -- 1,162,705
Note receivable from a corporation, $200,000
principal, interest accrues annually at 8%
Interest and principal due upon demand 224,636 220,647
Note receivable from a corporation, $360,000
principal collateralized by second lien on
condominium units, interest accrues annually at 9%
Interest and principal due August 27, 2002 377,398 369,321
------------ ------------
$ 3,146,554 $ 2,755,413
============ ============
</TABLE>
F-40
<PAGE> 74
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
10. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
2000 2000
------------ ------------
(UNAUDITED)
<S> <C> <C>
Note payable to a commercial lender, collateralized by a
first mortgage on real estate. Principal payable in
installments as condominium units are sold. Interest
accrues at prime, payable through an interest
reserve. Principal and unpaid interest due
November 2000, with an option for two six month
extensions. Guaranteed by a shareholder. $ 2,106,558 $ 2,681,998
Note payable to a corporation in seventy-five monthly
installments of principal and interest beginning
January 1, 1999. Interest accrues at 9.5% 270,554 272,397
$7.5 million and $15 million, respectively, line of credit
facility with a financial institution, collateralized by a first
mortgage on real estate. Interest accrues at 1% over
prime, payable monthly. Outstanding balance and unpaid
accrued interest due March 6, 2001 1,999,925 14,631,700
Balloon note payable to a corporation, interest accrues
at 15%. Principal and interest due April 18, 2002 1,500,000 --
Note payable to a financial institution, collateralized by
a first mortgage on Terremark Centre and all future
rents of the property. Principal and interest payable
monthly based on a 20-year amortization at 7.74% until
May 15, 2001 and at an adjustable rate thereafter
Remaining principal and interest due the earlier of
demand or May 15, 2006 -- 28,100,084
Notes payable to a corporation, collateralized by the
partnership interests of Terremark Centre, Ltd.
Principal, together with the greater of (a) all accrued
and unpaid interest at a rate of 7%, beginning
December 22, 1999 or (b) a minimum interest
payment of $1,000,000, due upon
sale of Terremark Centre -- 27,097,900
Other 4,924 --
------------ ------------
$ 5,881,961 $ 72,784,079
============ ============
</TABLE>
In June 2000, the Company amended its $15 million line of credit to
reduce the maximum amount to $7.5 million. Additionally, in July 2000,
the Company obtained a $750,000 letter of credit under its
F-41
<PAGE> 75
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
line of credit collateralizing a lease for additional office space. As
of June 30, 2000, approximately $4.75 million was available for
funding under the Company's line of credit.
On July 25, 2000, the Company borrowed $7.5 million from an individual
secured by a first mortgage on certain real estate inventories. The
loan accrues interest at 12.0% per annum payable monthly and matures
on March 1, 2001. In conjunction with this new loan, the Company
cancelled its $7.5 million line of credit with a financial
institution.
Interest expense of $245,466 and $199,510, net of amounts capitalized
to real estate inventories totaling $115,002 and $-0-, was recognized
during the three months ended June 30, 2000 and 1999, respectively.
The future maturities through June 30 for each of the following five
years and thereafter of the Company's borrowings as of June 30, 2000
are as follows:
<TABLE>
<S> <C>
2001 $ 4,134,701
2002 1,525,606
2003 28,148
2004 30,941
2005 34,012
Thereafter 128,553
-----------
Total $ 5,881,961
===========
</TABLE>
11. CHANGES TO STOCKHOLDERS' EQUITY
In addition to acquisitions effectuated through common stock
transactions, the Company entered into the following equity
transactions:
COMMON STOCK
The Company sold 68,722,349 shares of common stock to a third party
for approximately $28.1 million. The third party was the previous
owner of Terremark Centre.
CONVERTIBLE PREFERRED STOCK
On March 31, 1999, the holders of $3,597,474 of debt and $579,219 in
accrued interest payable converted their debt and the accrued interest
into 4,176,693 shares of convertible preferred stock. The $1 par value
preferred stock has a 10% cumulative preferred dividend, payable
annually commencing March 31, 2000. During April 2000, the preferred
stock was acquired by certain members of the Company's management.
Upon consummation of the AmTec merger, the preferred shares were
converted into 7,853,985 shares of the Company's common stock.
F-42
<PAGE> 76
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
SERIES G CONVERTIBLE PREFERRED STOCK
The Company assumed AmTec's 20 outstanding shares of Series G
convertible preferred stock ("Series G Preferred") in the AmTec
merger, which do not bear dividends. Conversion of the Series G
Preferred into common stock is based on the issue price plus an 8% per
annum non-compounding premium, divided by the lesser of: (a) $1.50 per
Series G Preferred share or (b) the closing price of the Company's
common stock, as reported on the American Stock Exchange, on the
business day immediately preceding the conversion.
The Series G Preferred also has a stated liquidation preference value
of $100,000 per share plus 8% in-kind dividends since March 1999, the
date of issuance. The holders have no voting rights except with
respect to matters that affect rights related to the Series G
Preferred.
STOCK WARRANTS
In conjunction with the AmTec merger, the Company assumed 3,036,981
warrants to acquire common stock at prices ranging from $1.25 to $3.31
per share. The Company has assigned a value of $1,687,038 to the
warrants. No warrants were exercised subsequent to the AmTec merger
through June 30, 2000.
STOCK OPTIONS
In conjunction with the AmTec merger, the Company adopted two stock
option plans, which were the 1995 and 1996 stock option plans, and
assumed all outstanding stock options. On June 23, 2000, the Board of
Directors of the Company adopted, subject to stockholder approval, the
2000 stock option plan. Prior to the AmTec merger, the Company did not
have a plan. Incentive and nonqualified options and stock appreciation
rights may be granted to employees, officers, directors, and
consultants of the Company. There are 12,500,000 shares of common
stock reserved for issuance under the 1995 and 1996 plans and
5,000,000 under the 2000 plan. The exercise price of the options are
determined by the board of directors, but in the case of an incentive
stock option, the exercise price may not be less than 100% of the fair
market value at the time of grant. Options vest over periods not to
exceed ten years.
F-43
<PAGE> 77
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
A summary of the status of all of the Company's stock options issued
as of June 30, 2000 and changes during the quarter then ended is
presented below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
NUMBER PRICE
------------ ------------
<S> <C> <C>
Outstanding at beginning of period -- $ --
Assumed in merger 7,848,500 1.53
Granted 3,406,099 3.26
Exercised (80,000) 1.23
------------
Outstanding at end of period 11,174,599 $ 2.04
------------ ------------
Options exercisable at end of period 7,570,250 $ 1.54
------------ ------------
Weighted average fair value of options
granted during the period $ 2.89
------------
</TABLE>
The Company has followed the guidelines under SFAS No. 123 to
determine the fair value of options at the date of grant. The value
was determined using an adjusted Black-Scholes option pricing model,
which is generally accepted as appropriate primarily for short-term,
exchange-traded options. For the purpose of valuing the Company's
options, the following assumptions were used:
<TABLE>
<S> <C>
Risk-free rate 5.27 - 6.56%
Volatility 80-135%
Expected life 5 years
Expected dividends 0%
</TABLE>
The following table summarizes information about options outstanding
at June 30, 2000:
<TABLE>
<CAPTION>
AVERAGE NUMBER
NUMBER REMAINING AVERAGE EXERCISABLE
RANGE OF OUTSTANDING AT CONTRACTUAL EXERCISE OPTIONS AT
EXERCISE PRICES JUNE 30, 2000 LIFE (YEARS) PRICE JUNE 30, 2000
--------------- -------------- ------------ -------- -------------
<S> <C> <C> <C> <C>
$0.35 - 0.50 3,525,000 4.86 $ 0.350 3,525,000
$0.5 - 1.00 217,500 8.49 0.870 117,500
$1.01 - 1.50 978,500 7.36 1.369 880,250
$1.51 - 2.00 17,500 8.81 1.821 17,500
$2.01 - 3.00 3,017,500 6.19 2.998 3,017,500
$3.01 - 4.00 3,418,599 9.84 3.201 12,500
----------- ----------
11,174,599 7,570,250
=========== ==========
</TABLE>
F-44
<PAGE> 78
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
The Company applies Accounting Principles Board Opinion No. 25 and
related Interpretations in accounting for its employee options.
Accordingly, no compensation cost has been recognized with respect to
such awards. Had compensation cost for the Company's stock option
plans been determined consistent with Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based
Compensation," the Company's net earnings and earnings per share for
the quarter ended June 30, 2000, would have approximated the pro forma
amounts indicated below:
<TABLE>
<S> <C>
Net loss applicable to common shares - as reported $ (5,497,405)
------------
Net loss applicable to common shares - proforma $ (6,363,096)
------------
Loss per common share - as reported $ (0.04)
------------
Loss per common share - proforma $ (0.04)
------------
</TABLE>
F-45
<PAGE> 79
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
12. INCOME TAXES
The deferred tax provision consists of income taxes relating to
differences between the tax bases of assets and liabilities and their
financial reporting amounts.
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
2000 2000
------------ ------------
(UNAUDITED)
<S> <C> <C>
Deferred tax assets:
Charitable contributions $ 200,355 $ 199,704
Deferred revenue (percentage of completion vs
completed contract) 316,742 315,292
Capitalized start-up costs 6,292,379 --
Equity basis in foreign investment 164,401 --
Allowances and other 166,938 166,938
Net operating loss carryforwards 10,666,406 2,745,673
Tax credits 511,780 245,780
------------ ------------
Total deferred tax assets 18,319,001 3,673,387
------------ ------------
Valuation allowance (18,200,323) (3,553,499)
------------ ------------
Deferred tax liability:
Excess of book basis over tax basis on real
estate investment (109,758) (109,758)
Other (8,920) (10,130)
------------ ------------
Total deferred tax liability (118,678) (119,888)
------------ ------------
Net deferred tax asset $ -- $ --
------------ ------------
</TABLE>
The Company provides a valuation allowance against deferred tax assets
if, based on the weight of available evidence, it is more likely than
not that some or all of the deferred tax assets will not be realized.
The Company has established a valuation allowance against deferred tax
assets of $18,200,323 and $3,553,499 as of June 30, 2000 and March 31,
2000, respectively, since the Company has a history of operating
losses and in the near term does not expect taxable income.
Accordingly, the deferred tax asset will likely not be realized.
As of June 30, 2000, the Company had federal and state net operating
loss carryforwards of approximately $25.0 million, which begin to
expire in 2011. The utilization of the net operating losses generated
prior to the AmTec merger may be limited by the Internal Revenue Code.
F-46
<PAGE> 80
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
The reconciliation between the statutory income tax rate and the
effective income tax rate on pre-tax income (loss) is as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 30,
---------------------------
2000 1999
------- -------
<S> <C> <C>
Rate reconciliation
Statutory rate (34.0)% 34.0%
State income taxes, net of federal income tax benefit (2.9)% 3.0%
Other permanent differences 9.3% --
Increase (decrease) in valuation allowance 27.6% (37.0)%
------- -------
Effective tax rate 0.0% 0.0%
------- -------
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
LEASING ACTIVITIES
The Company leases space for its property management operations,
office equipment and furniture under operating leases. Certain
equipment is also leased under a capital lease, which is summarized as
follows:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
TERM 2000 2000
------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and equipment 5 years $ 111,654 $ 111,654
Computers and other equipment 3 years 216,412 216,412
------------ ------------
328,066 328,066
Less: accumulated amortization 74,045 68,462
------------ ------------
Net capitalized leased asset $ 254,021 $ 259,604
============ ============
</TABLE>
F-47
<PAGE> 81
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
At June 30, 2000, future minimum lease payments through June 30 of
each of the following five years and thereafter under non-cancellable
operating and capital leases having a remaining term in excess of one
year are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- ------------
<S> <C> <C>
2001 $ 109,208 $ 806,621
2002 109,208 1,090,952
2003 43,662 1,059,975
2004 2,334 1,033,150
2005 2,334 922,830
Thereafter -- 3,508,470
---------- ------------
Total minimum lease payments 266,746 $ 8,421,998
============
Amount representing interest 31,358
----------
Present value of net minimum lease payments $ 235,388
==========
</TABLE>
Operating lease expense amounted to $177,721 and $10,148 for the three
months ended June 30, 2000 and 1999, respectively.
LITIGATION
The Company is a defendant in various lawsuits arising in the ordinary
course of business. Management, after consultation with its legal
counsel, believes its positions to be meritorious. However, in the
event that decisions are adverse, management does not believe the
outcome of these matters would have a material effect on the
consolidated financial statements.
CONTINGENT PROFIT
In conjunction with the sale in August 1998 of its interest in certain
real estate, the Company entered into an agreement with the buyer
wherein the Company is entitled to an additional contingent payment of
$2.75 million plus a 10% cumulative return on the payment. The fee is
due when the buyer has recovered its invested capital plus a 10%
return. The Company also has a right to share in additional funds
distributed above these returns. While the Company has recognized the
gain from the sale, it has not recognized any income under the
contingent payment provisions as of June 30, 2000.
OTHER
The Company has unconditionally guaranteed payment of a first mortgage
on inventory sold in December 1999. As of June 30, 2000, $740,000 is
outstanding under the mortgage.
F-48
<PAGE> 82
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
14. RELATED PARTY TRANSACTIONS
Due to the nature of the following relationships, the terms of the
respective agreements might not be the same as those that would result
from transactions among wholly unrelated parties. All significant
related party transactions require approval by the Company's board of
directors.
Certain officers and executives of the Company own partnership
interests in two office buildings. The Company provides management
services to both partnerships for a fee. Management fees earned
totaled $28,515 and $32,303 for the three month periods ended June 30,
2000 and 1999.
During the three month periods ended June 30, 2000 and 1999, the
Company provided management services to the Fortune House Condominium
Association. The Company recorded as income $12,500 relating to the
services performed during each period.
15. INFORMATION ABOUT THE COMPANY'S OPERATING SEGMENTS
The Company has three reportable business segments, real estate
services, telecom facilities management and telecom services. The real
estate services segment develops, constructs and sells condominiums
and engages in construction, development and management of other real
estate projects. The telecom facilities management segment develops,
manages and leases facilities catering primarily to the
telecommunications industry. The telecom services segment represents
investments related to telecommunications entities. The Company's
reportable segments are strategic business operations that offer
different products and services. They are managed separately because
each business requires different expertise and marketing strategies.
The accounting policies of the segments are the same as those
described in significant accounting policies. Revenues generated among
segments are recorded at rates similar to those recorded in
third-party transactions. Transfers of assets and liabilities between
segments are recorded at cost. The Company evaluates performance based
on the segment's net operating results. The following presents
information about reportable segments.
F-49
<PAGE> 83
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
TELECOM
FOR THE THREE MONTHS ENDED JUNE 30, REAL ESTATE FACILITIES TELECOM
2000 SERVICES MANAGEMENT SERVICES TOTAL
----------------------------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Revenue $ 1,749,375 $ 75,407 $ -- $ 1,824,782
Loss from operations (1,494,424) (791,260) (2,218,199) (4,503,883)
Net loss (2,411,048) (791,260) (2,295,097) (5,497,405)
1999
-----------------------------------
Revenue $ 5,474,949 $ -- $ -- $ 5,474,949
Loss from operations (567,721) -- -- (567,721)
Net loss (839,098) -- -- (839,098)
ASSETS, AS OF
-----------------------------------
June 30, 2000 $ 31,767,866 $ 20,446,221 $ 55,844,428 $ 108,058,515
March 31, 2000 77,998,146 -- -- 77,998,146
</TABLE>
16. SUBSEQUENT EVENT
In August 2000, the Company acquired 80% of Spectrum Telecommunications
Corp. ("Spectrum") common stock in exchange for (a) three million
shares of the Company's common stock and (b) forgiveness of the
outstanding balance due under the Company's line of credit,
approximately $3.5 million, to Spectrum. The Company has a further
option for a period of 18 months from the date of exercise of the first
option to acquire the balance of Spectrum's capital stock in exchange
for $10 million or 1,500,000 shares of Fusion Telecommunications
International, Inc. common stock. As of June 30, 2000, the Company had
advanced $2.5 million to Spectrum under the line of credit.
* * * * *
F-50
<PAGE> 84
161,262,179 SHARES
TERREMARK WORLDWIDE, INC.
COMMON STOCK
PROSPECTUS
September , 2000
--------------------------------------------------------------------------------
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this prospectus and, if given or made, any information and representations must
not be relied upon as having been authorized. This prospectus does not
constitute an offer to sell or the solicitation of an offer to buy any
securities other than the securities to which it relates or an offer to sell or
the solicitation of an offer to buy these securities in any circumstances in
which this offer or solicitation is unlawful. Neither the delivery of this
prospectus nor any sale made under this prospectus shall, under any
circumstances, create any implication that there has been no change in our
affairs since the date of this prospectus or that the information contained in
this prospectus is correct as of any time subsequent to its date.
<PAGE> 85
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
We estimate that expenses in connection with the distribution described
in this registration statement will be as follows. All expenses incurred with
respect to the distribution will be paid by us, and such amounts, with the
exception of the Securities and Exchange Commission registration fees, are
estimates.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee................................................................... $ 154,328
American Stock Exchange................................................................ 17,700
Accounting fees and expenses........................................................... 35,000
Legal fees and expenses................................................................ 25,000
Printing and engraving expenses........................................................ 10,000
Miscellaneous.......................................................................... 972
---------
Total.................................................................................. 243,000
=========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Section 102(b)(7) of the General Corporation Law of the
State of Delaware, our certificate of incorporation eliminates the liability of
our directors to us or our stockholders, except for liabilities related to
breach of duty of loyalty, actions not in good faith, and certain other
liabilities.
Our certificate of incorporation, and bylaws provide for the
indemnification of directors and officers to the fullest extent permitted by the
General Corporate Law.
Section 145 of the General Corporate Law authorizes indemnification
when a person is made a party to any proceeding by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation or
was serving as a director, officer, employee or agent of another enterprise, at
the request of the corporation, and if such person acted in good faith and in a
manner reasonably believed by him or her to be in, or not opposed to, the best
interests of the corporation. With respect to any criminal proceeding, such
person must have had no reasonable cause to believe that his or her conduct was
unlawful. If it is determined that the conduct of such person meets these
standards, he or she may be indemnified for expenses incurred and amounts paid
in such proceeding if actually and reasonably incurred by him or her in
connection therewith.
If such a proceeding is brought by or on behalf of the corporation
(i.e., a derivative suit), such person may be indemnified against expenses
actually and reasonably incurred if he or she acted in good faith and in a
manner reasonably believed by him or her to be in, or not opposed to, the best
interests of the corporation. There can be no indemnification with respect to
any matter as to which such person is adjudged to he liable to the corporation;
however, a court may, even in such case, allow such indemnification to such
person for such expenses as the court deems proper. Where such person is
successful in any such proceeding, he or she is entitled to be indemnified
against expenses actually and reasonably incurred by him or her. In all other
cases, indemnification is made by the corporation upon determination by it that
indemnification of such person is proper because such person has met the
applicable standard of conduct.
Our board of directors has approved, and we are in the process of
entering into, indemnification agreements with all of our directors and senior
officers. These indemnification agreements provide, in pertinent part, that we
shall indemnify an indemnitee who is or was a party or is threatened, pending or
completed action or proceeding whether civil, criminal, administrative or
investigative by reason of the fact that the indemnitee is or was our director
or senior officer. We shall advance all expenses, judgments, fines, penalties
and amounts paid in settlement (including taxes imposed on indemnitee on account
of receipt of such payouts) incurred by the indemnitee in connection with the
investigation, defense, settlement or appeal of any civil or criminal action or
proceeding as described above. The indemnitee shall repay such amounts advanced
only if it shall be ultimately
II-1
<PAGE> 86
determined that he or she is not entitled to be indemnified by us. The advances
paid to the indemnitee by us shall be delivered within 20 days following a
written request by the indemnitee. Any award of indemnification to an
indemnitee, if not covered by insurance, would come directly from our assets,
thereby affecting a stockholder's investment.
We have obtained directors' and officers' liability insurance with an
aggregate liability for the policy year, inclusive of costs of defense, in the
amount of $3,000,000.
ITEM 16. EXHIBITS
The following exhibits, which are furnished with this registration
statement or incorporated by reference, are filed as part of this registration
statement:
3.1 Restated Certificate of Incorporation of the Registrant (1)
3.2 Restated Bylaws of the Registrant (1)
5.1 Opinion of Greenberg Traurig, P.A.
10.1 Form of Indemnification Agreement for Senior Officers and
Directors
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of PricewaterhouseCoopers LLP
24.1 Power of Attorney (contained in Exhibit 5.1)
------------------
(1) Previously filed as an exhibit to Registrant's Registration Statement on
Form S-3 filed May 15, 2000.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to directors,
officers and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the opinion of
the Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes that for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made of the securities registered hereby, a post-effective amendment to
this Registration Statement.
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in this
Registration Statement;
II-2
<PAGE> 87
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement; provided, however,
that (i) and (ii) do not apply if the Registration Statement
is on Form S-3, and the information required to be included in
a post-effective amendment is contained in periodic reports
filed by the registrant pursuant to Section 13 or Section
15(d) of the Exchange Act that are incorporated by reference
in the Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE> 88
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
amendment to registration statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
** Chairman of the Board, Chief Executive Officer September 1, 2000
--------------------------------------- (Principal Executive)
Manuel D. Medina
** Director September 1, 2000
---------------------------------------
Timothy Elwes
** Senior Vice-President and Chief Financial September 1, 2000
--------------------------------------- Officer
Irving A. Padron, Jr.
Director September 1, 2000
---------------------------------------
Clifford J. Preminger
** Director September 1, 2000
---------------------------------------
Marvin S. Rosen
** Director September 1, 2000
---------------------------------------
Miguel Rosenfeld
** Director September 1, 2000
---------------------------------------
Joel A. Schleicher
** Director September 1, 2000
---------------------------------------
Kenneth I. Starr
** Director September 1, 2000
---------------------------------------
Joseph R. Wright, Jr.
/s/ Brian K. Goodkind Executive Vice President and Chief Operating September 1, 2000
--------------------------------------- Officer
Brian K. Goodkind, on behalf of himself as
well as Attorney in Fact
</TABLE>
** Executed on behalf of these individuals by Brian K. Goodkind as
attorney in fact.
*** Clifford J. Preminger hereby appoints Brian K. Goodkind his true and
lawful attorney-in-fact with the authority to execute in his name, and
to file with the Securities and Exchange Commission, together with any
exhibits thereto and other documents therewith, any and all amendments
(including without limitation post-effective amendments) to this
registration statement necessary or advisable to enable the registrant
to comply with the Securities Act of 1933, as amended, and any rules,
regulations and requirements of the Securities and Exchange Commission
in respect thereof, which amendments may make such other changes in the
registration statement as the aforesaid attorney-in-fact executing the
same deems appropriate.
II-4
<PAGE> 89
EXHIBIT INDEX
Exhibits
--------
3.1 Restated Certificate of Incorporation of the Registrant (1)
3.2 Restated Bylaws of the Registrant (1)
5.1 Opinion of Greenberg Traurig, P.A.
10.1 Form of Indemnification Agreement for Senior Officers and
Directors
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of PricewaterhouseCoopers LLP
24.1 Power of Attorney (contained in Exhibit 5.1)
-------------------
(1) Previously filed as an exhibit to Registrant's Registration Statement
on Form S-3 filed May 15, 2000.
II-5
