<PAGE> 1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM ____________ TO ____________.
COMMISSION FILE NUMBER: 0-22520
TERREMARK WORLDWIDE, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 52-1981922
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
</TABLE>
2601 S. BAYSHORE DRIVE
MIAMI, FLORIDA 33133
(Address of Principal Executive Offices and Zip Code)
(305) 856-3200
(Registrant's Telephone Number, Including Area Code)
AMTEC, INC.
(Former Name of Registrant)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The registrant had 200,372,179 shares of common stock, $0.001 par value,
outstanding as of November 10, 2000.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
TERREMARK WORLDWIDE, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I FINANCIAL INFORMATION....................................... 2
ITEM 1. Financial Statements............................... 2
Condensed Consolidated Balance Sheets as of September 30,
2000 (unaudited) and March 31, 2000......................... 2
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended September 30, 2000 and 1999
(unaudited)................................................. 3
Condensed Consolidated Statement of Changes in Stockholders'
Equity for the Six Months Ended September 30, 2000
(unaudited)................................................. 4
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended September 30, 2000 and 1999 (unaudited)........ 5
Notes to Condensed Consolidated Financial Statements
(unaudited)................................................. 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 14
PART II OTHER INFORMATION........................................... 22
ITEM 2. Changes in Securities and Use of Proceeds.......... 22
ITEM 4. Submission of Matters to a Vote of Security
Holders..................................................... 22
ITEM 6. Exhibits and Reports on Form 8-K................... 23
SIGNATURES.................................................. 24
</TABLE>
i
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
2000 2000
------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 5,291,282 $ 3,391,977
Restricted cash............................................. 30,000 506,776
Accounts receivable......................................... 1,719,146 777,307
Contracts receivable........................................ 4,161,538 --
Real estate inventories..................................... 12,779,042 11,797,306
Investment in affiliates.................................... 1,564,555 --
Investments in unconsolidated entities...................... 6,050,249 --
Notes receivable............................................ 869,013 2,755,413
Property, plant and equipment, net of accumulated
depreciation of $557,402 and $133,943, respectively....... 8,985,614 1,010,735
Other assets................................................ 5,930,379 1,977,373
Identifiable intangible assets and goodwill, net of
accumulated amortization of $5,175,594 and $-0-,
respectively.............................................. 83,614,533 --
Real estate held for sale................................... -- 55,781,259
------------ -----------
Total assets...................................... $130,995,351 $77,998,146
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable............................................... $ 17,539,361 $72,784,079
Trade payables.............................................. 11,465,742 4,083,039
Capital lease obligations and other liabilities............. 2,861,247 581,683
Interest payable............................................ 656,494 72,914
------------ -----------
Total liabilities................................. 32,522,844 77,521,715
------------ -----------
Minority interest........................................... 274,745
Convertible preferred stock: $1 par value, -0- and 4,176,693
shares authorized, issued and outstanding, respectively... -- 4,176,693
Series G convertible preferred stock: $.001 par value, 20
and -0- shares authorized, issued and outstanding,
respectively.............................................. 1 --
Common stock: $.001 par value, 300,000,000 shares
authorized; 200,372,179 and 70,685,845 shares issued and
outstanding, respectively................................. 200,372 70,686
Paid in capital............................................. 125,292,429 7,954,010
Retained deficit............................................ (28,958,419) (11,724,958)
Common stock warrants....................................... 1,665,398 --
Accumulated other comprehensive income...................... (2,019) --
Commitments and contingencies (Note 8)
------------ -----------
Total stockholders' equity........................ 98,197,762 476,431
------------ -----------
Total liabilities and stockholders' equity........ $130,995,351 $77,998,146
============ ===========
</TABLE>
The accompanying notes are an integral part of these interim consolidated
financial statements.
2
<PAGE> 4
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ----------------------------
2000 1999 2000 1999
------------ ----------- ------------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues
Telecom services.................... $ 500,699 $ -- $ 500,699 $ --
Real estate sales................... 1,061,067 3,435,227 1,715,542 8,116,793
Commission income................... 536,777 8,197 869,558 130,081
Development and construction fees... 510,890 351,667 867,188 683,334
Management fees..................... 571,677 385,232 926,568 640,242
Construction contracts.............. 5,315,802 5,782 5,442,139 90,604
------------ ----------- ------------ -----------
Operating revenues............. 8,496,912 4,186,105 10,321,694 9,661,054
------------ ----------- ------------ -----------
Expenses
Cost of telecom services............ 658,930 -- 658,930 --
Cost of real estate sold............ 893,017 3,541,313 1,434,496 7,082,888
Construction contract expenses...... 4,956,987 -- 5,083,324 57,271
General and administrative
expenses......................... 8,824,069 687,811 12,091,142 2,545,767
Sales and marketing expenses........ 1,493,597 421,472 2,293,301 990,000
Depreciation and amortization....... 4,006,011 23,160 5,600,083 40,500
------------ ----------- ------------ -----------
Operating expenses............. 20,832,611 4,673,756 27,161,276 10,716,426
------------ ----------- ------------ -----------
Loss from operations................ (12,335,699) (487,651) (16,839,582) (1,055,372)
------------ ----------- ------------ -----------
Other income (expense)
Equity in losses of affiliate....... (30,194) -- (203,749) --
Interest income..................... 164,245 95,221 327,502 99,696
Interest expense.................... (91,720) (187,441) (337,186) (418,816)
Other (expense) income.............. 356,751 29,463 (346,201) 89,403
Dividend on preferred stock......... -- (104,418) (34,806) (208,835)
Minority interest................... 200,561 -- 200,561 --
------------ ----------- ------------ -----------
Total other income
(expense)................. 599,643 (167,175) (393,879) (438,552)
------------ ----------- ------------ -----------
Loss before income taxes............ (11,736,056) (654,826) (17,233,461) (1,493,924)
Income taxes
Current tax expense................. -- -- -- --
Deferred tax expense................ -- -- -- --
------------ ----------- ------------ -----------
Total income tax expense.... -- -- -- --
------------ ----------- ------------ -----------
Net loss............................ $(11,736,056) $ (654,826) $(17,233,461) $(1,493,924)
============ =========== ============ ===========
Basic and diluted loss per common
share............................ $ (0.06) $ (0.01) $ (0.10) $ (0.02)
============ =========== ============ ===========
Weighted average common shares
outstanding...................... 198,806,847 70,685,845 176,721,613 70,685,845
============ =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these interim consolidated
financial statements.
3
<PAGE> 5
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
----------------------------------------------------------------------------------------------
COMMON STOCK
PAR VALUE $.001 ACCUMULATED
---------------------- ADDITIONAL COMMON OTHER
PREFERRED ISSUED PAID-IN STOCK COMPREHENSIVE RETAINED
STOCK SHARES AMOUNT CAPITAL WARRANTS INCOME DEFICIT
---------- ----------- -------- ------------ ---------- ------------- ------------
<S> <C> <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 38,289,500 38,289 46,923,782 1,687,038 -- --
Sale of common stock............ -- 68,722,349 68,722 28,054,203 -- -- --
Common stock issued in
acquisitions.................. -- 14,412,500 14,413 37,531,045 -- -- --
Exercise of warrants............ -- 54,000 54 190,161 (21,640) -- --
Exercise of stock options....... -- 354,000 354 470,389 -- -- --
Foreign currency translation.... -- -- -- -- -- (2,019) --
Net loss........................ -- -- -- -- -- -- (17,233,461)
---------- ----------- -------- ------------ ---------- ------- ------------
Balance at September 30, 2000
(unaudited)................... $ 1 200,372,179 $200,372 $125,292,429 $1,665,398 $(2,019) $(28,958,419)
========== =========== ======== ============ ========== ======= ============
</TABLE>
The accompanying notes are an integral part of these interim consolidated
financial statements.
4
<PAGE> 6
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
SEPTEMBER 30,
---------------------------
2000 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(17,233,461) $(1,493,924)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities
Depreciation........................................... 308,191 29,335
Amortization of loan costs to interest expense......... 102,514 63,729
Amortization of capital lease.......................... 22,688 11,165
Amortization of intangible assets and goodwill......... 5,269,204 --
Minority interest in loss of subsidiary................ 274,745 --
Equity in losses of affiliate.......................... 203,749 --
Foreign currency translation........................... (2,019) --
(Increase) decrease in:
Real estate inventories:
Additions to real estate inventories.............. (1,779,741) (851,417)
Capitalized interest and real estate taxes........ (472,481) (1,485)
Cost of real estate inventories sold.............. 1,270,486 6,476,288
Restricted cash...................................... 506,776 2,074
Accounts receivable.................................. 2,338,117 (211,758)
Contracts receivable................................. (4,161,538) --
Notes receivable..................................... 883,660 118,484
Other assets......................................... (3,057,637) 7,857
Increase (decrease) in:
Trade payable and other liabilities.................. 1,885,034 (683,272)
Interest payable..................................... 583,580 187,349
------------ -----------
Net cash (used in) provided by operating
activities...................................... (13,058,133) 3,654,425
------------ -----------
Cash flows from investing activities:
Purchase of fixed assets.................................. (2,585,326) (46,558)
Investment in affiliate................................... (361,914) --
Investment in unconsolidated entities..................... (4,049,070) --
Proceeds from sale of Terremark Centre.................... 55,781,259 --
Cash acquired in acquisitions............................. 2,368,273 --
------------ -----------
Net cash provided by (used in) investing
activities...................................... 51,153,222 (46,558)
============ ===========
Cash flows from financing activities:
New borrowings............................................ 10,262,403 2,230,000
Payments on loans......................................... (75,220,430) (4,373,059)
Exercise of stock options................................. 470,743 --
Sale of common stock...................................... 28,122,925 --
Warrants.................................................. 168,575 --
Cash overdraft............................................ -- (44,704)
------------ -----------
Net cash used in financing activities............. (36,195,784) (2,187,763)
------------ -----------
Net increase in cash.............................. 1,899,305 1,420,104
Cash and cash equivalents at beginning of period............ 3,391,977 2,808,033
------------ -----------
Cash and cash equivalents at end of period.................. $ 5,291,282 $ 4,228,137
============ ===========
SUPPLEMENTAL DISCLOSURE:
Interest paid (net of amount capitalized)................... $ 312,320 $ 418,816
============ ===========
Taxes paid.................................................. $ -- $ --
============ ===========
Assets acquired under capital lease......................... $ 71,778 $ 93,970
============ ===========
</TABLE>
See Note 2 in the accompanying notes for additional discussion of non-cash
acquisitions.
The accompanying notes are an integral part of these interim consolidated
financial statements.
5
<PAGE> 7
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
1. 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
These condensed consolidated financial statements as of September 30, 2000
and March 31, 2000, and for the three and six month periods ended September 30,
2000 and 1999 are unaudited and have been prepared on a basis substantially
consistent with the audited consolidated financial statements of Terremark
Worldwide, Inc. and its subsidiaries (collectively, "Terremark" or the
"Company"). These statements reflect all adjustments that are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim period. All adjustments are of a normal
recurring nature. The results of operations for the six months ended September
30, 2000 are not necessarily indicative of the results for the entire year
ending September 30, 2000. The comparative balances of March 31, 2000 were
derived from the Company's annual financial statements, which were subject to an
independent audit. These statements have been prepared in accordance with the
regulations of the Securities and Exchange Commission ("SEC"), but omit certain
information and footnote disclosure necessary to present the statements in
accordance with generally accepted accounting principles. For further
information, refer to the Consolidated Financial Statements included in
Terremark's Amendment No. 1 to Form S-3 (File No. 333-37060) as of June 30, 2000
and March 31, 2000 and for the three-month periods ended June 30, 2000 and 1999
as filed with the SEC on September 1, 2000. Results of operations for the
interim periods are not necessarily indicative of results for the entire fiscal
year.
The Company's consolidated financial statements include the accounts of the
Company's wholly and majority-owned subsidiaries. All significant intercompany
balances and transactions are eliminated in consolidation.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior periods' financial
statements to conform to current presentation.
REVENUE AND PROFIT RECOGNITION
Revenues from telecommunication services are recognized as services are
provided.
Revenues from telecom facilities management are recognized as earned.
Revenues from construction contracts are recognized on the
percentage-of-completion method, measured by the percentage of costs incurred to
date to total estimated costs for each contract. This method is used because
management considers cost incurred to be the best measure of progress on these
contracts. The average duration of a construction contract is 1-2 years.
Contract costs include all direct material and labor costs and indirect
costs related to contract performance such as indirect labor, supplies, tools,
repairs and depreciation. General and administrative costs are charged to
expense as incurred.
Provisions for estimated losses on uncompleted contracts are made in the
period in which losses are determined. Changes in job performance, job
conditions and estimated profitability, including those arising from contract
penalty provisions and final contract settlements may result in revisions to
costs and income and are recognized in the period in which the revisions can be
reasonably estimated. Accordingly, it is possible that
6
<PAGE> 8
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company's current estimates relating to completion cost and profitability of
its uncompleted contract will vary from actual results.
Billings in excess of costs and estimated earnings on uncompleted contracts
are classified as other liabilities and represent billings in excess of revenues
recognized.
OTHER COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," effective January 1,1998. Accordingly, gains
and losses on translation of accounts of the Company's non-U.S. operations are
accumulated and reported as a component of accumulated other comprehensive
income in stockholders' equity. At September 30, 2000 and 1999, the Company had
an other comprehensive loss of $2,019 and $0, respectively.
2. ACQUISITIONS:
AMTEC, INC.
On April 28, 2000, the predecessor to the Company, Terremark Holdings, Inc.
(THI) merged with and into AmTec, Inc., 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"). As a result of the merger, each share of THI common stock was
converted into approximately 63 shares of the Company's common stock. The
stockholders' equity in the historical financial statements reflects this
conversion as if it had occurred at the beginning of each period.
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 six months
ended September 30, 2000 and 1999 were prepared assuming the merger occurred on
April 1, 2000 and 1999, respectively.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
SEPTEMBER 30,
---------------------------
2000 1999
------------ -----------
<S> <C> <C>
Revenue.................................................. $ 10,322,000 $ 9,661,000
Net loss................................................. $(18,080,000) $(8,167,000)
Basic and diluted net loss per share..................... $ (0.09) $ (0.05)
</TABLE>
The amounts for the six months ended September 30, 2000 include AmTec's
actual results for the period April 1, 2000 to April 28, 2000. The amounts for
the six months ended September 30, 1999 include AmTec's actual results for the
six months ended September 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.
OTHER ACQUISITIONS
During the quarter ended September 30, 2000, the Company acquired three
businesses. The Company accounted for each acquisition as a purchase. When
consideration included common stock, its value was determined using the average
closing price of the Company's stock for a period immediately before and after
7
<PAGE> 9
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
each acquisition's announcement. The effect of each acquisition individually and
in the aggregate on the Company's consolidated financial statements was not
material. The acquisitions are as follows:
Spectrum Telecommunications
On August 9, 2000, the Company acquired an 80% ownership interest in
Spectrum Telecommunications, Inc. ("Spectrum") through issuing 3.0 million
shares of common stock. Spectrum is a provider of telecommunication services in
Latin America. As part of the Spectrum acquisition, the Company has an option to
acquire the remaining 20% of Spectrum.
IXS.NET
On August 14, 2000, the Company acquired 100% of IXS.NET ("IXS"), a private
IP fax services provider in Asia, by issuing 412,500 shares of common stock and
transferring a 7.55% ownership interest in the Company's subsidiary, Asia
Connect.
Asia Connect
In September 2000, the Company completed its acquisition of a controlling
interest in Asia Connect L.L.C. (Asia Connect). Asia Connect is developing
unified messaging services in Asia. At September 30, 2000 the Company owned
92.45% of Asia Connect.
Acquisitions during the three-month period ended September 30, 2000 are
summarized as follows:
<TABLE>
<CAPTION>
SPECTRUM IXS.NET ASIA CONNECT
----------- ----------- ------------
<S> <C> <C> <C>
Assets:
Cash and cash equivalents..................... $ 247,130 $ 26,945 $ 29,925
Accounts receivable........................... 531,712 184,902 --
Furniture and equipment....................... 5,352,923 161,694 55,866
Other assets.................................. 900,939 95,710 293,030
Goodwill...................................... 18,192,975 4,052,444 6,770,179
Reclassification of options................... -- (2,400,000) (6,500,000)
----------- ----------- -----------
Total assets acquired................. $25,225,679 $ 2,121,695 $ 649,000
=========== =========== ===========
Liabilities
Notes payable................................. $10,531,229 $ 29,896 $ 150,000
Trade payable and other liabilities........... 1,693,463 320,904 --
----------- ----------- -----------
Total liabilities assumed............. 12,224,692 350,800 150,000
Minority interest............................. 475,306 -- --
Issuance of common stock........................ 12,039,000 1,576,458 --
Estimated merger costs and other................ 486,681 194,437 499,000
----------- ----------- -----------
$25,225,679 $ 2,121,695 $ 649,000
=========== =========== ===========
</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.
8
<PAGE> 10
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. CONTRACTS RECEIVABLE:
Contracts receivable consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
2000 2000
------------- ---------
(UNAUDITED)
<S> <C> <C>
Completed contracts......................................... $ 799,806 $ --
Contracts in progress....................................... 2,681,854 --
Retainage................................................... 709,878 --
---------- --------
4,191,538 --
Less: allowance for doubtful collection..................... (30,000) --
---------- --------
$4,161,538 --
========== ========
</TABLE>
5. REAL ESTATE INVENTORIES:
Real estate inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
2000 2000
------------- -----------
(UNAUDITED)
<S> <C> <C>
Work in progress............................................ $10,685,892 $ 8,566,697
Completed inventories....................................... 2,093,150 3,230,609
----------- -----------
$12,779,042 $11,797,306
=========== ===========
</TABLE>
5. OTHER ASSETS:
Other assets consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
2000 2000
------------- ----------
(UNAUDITED)
<S> <C> <C>
Prepaid expenses and other.................................. $3,746,974 $1,057,340
Loan costs, net of accumulated amortization of $1,347,572
and $1,095,595............................................ 116,969 368,946
Prepaid investment costs.................................... 1,638,436 410,591
Option agreement............................................ 428,000
Reimbursable construction costs and other expenses.......... -- 140,496
---------- ----------
$5,930,379 $1,977,373
========== ==========
</TABLE>
9
<PAGE> 11
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. NOTES RECEIVABLE:
Notes receivable consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
2000 2000
------------- ----------
(UNAUDITED)
<S> <C> <C>
Note receivable from a corporation, $200,000 principal,
interest accrues annually at 8%. Interest and principal
due upon demand........................................... $228,669 $ 220,647
Note receivable from a corporation, $360,000 principal,
collateralized by a second lien on condominium units,
interest accrues annually at 9%. Interest and principal
due August 27, 2002....................................... 385,565 369,321
Note receivable from a corporation, $254,194 principal,
interest accrues daily at prime plus 1%. Interest and
principal due October 10, 2000............................ 254,779 --
$3,000,000 million line of credit to Spectrum
Telecommunications Corp., $0 and $1,000,000 principal
outstanding, 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
-------- ----------
$869,013 $2,755,413
======== ==========
</TABLE>
7. NOTES PAYABLE:
Notes payable consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 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............................................... $ 1,110,078 $ 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%......................... 263,032 272,397
Balloon note payable to a corporation, interest accrues at
15%. Principal and interest due April 18, 2002............ 1,500,000 --
Note payable to an individual, collateralized by a first
mortgage on land , interest accrues at 12% and is payable
monthly. Outstanding principal balance is due March 1,
2001...................................................... 7,500,000 --
Note payable to a vendor, collateralized by subscriber
communication units and equipment interest accrues at
LIBOR + 1%, principal and interest are payable in varying
semiannual installments through October 2001.............. 373,800 --
</TABLE>
10
<PAGE> 12
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
2000 2000
------------- -----------
(UNAUDITED)
<S> <C> <C>
Note payable to a vendor, collateralized by
telecommunications equipment and infrastructure, interest
accrues at 7.5%, principal and interest are payable in
varying installments through July 2004.................... 746,908 --
Note payable to a vendor, collateralized by certain
telecommunications equipment, interest accrues at 11%,
interest and principal are payable monthly through
November 2001............................................. 411,714 --
Note payable to a vendor, collateralized by certain ,
telecommunication equipment, interest accrues at 11%,
interest and principal are payable monthly through June
2002...................................................... 1,262,403 --
Notes payable to an individual, accrues interest at 8%, with
principal and interest due monthly through March 2001..... 246,695 --
$2.25 million line of credit facility with a financial
institution, collateralized by (1) certain assets and
personal guarantees of a stockholder of the Company and
certain executives of the Company and (2) a corporate
guaranty. Interest accrues at 1% over prime, payable
monthly, with principal balance due December 2000......... 2,250,000 --
Notes payable to individuals bearing interest at 8%, with
principal and interest payable monthly through March
2001...................................................... 374,731 --
Notes payable to an executive of the Company, secured by
certain investments held in escrow. Interest accrues at
4.75% over prime, principal and interest due on demand. As
of September 30, 2000, the Company had recorded interest
payable of $349,905 to such executive..................... 1,500,000 --
$15 million line of credit facility with a financial
institution, collateralized by a first mortgage on real
estate. Interest accrues at 1% over prime, payable
monthly. Line of credit reduced to $7.5 million in 2000
and cancelled in July 2000................................ -- 14,631,700
Notes 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
----------- -----------
$17,539,361 $72,784,079
=========== ===========
</TABLE>
In the quarter ended September 30, 2000, the Company obtained a $5 million
line of credit facility with a financial institution collateralized by the
Company's assets. Interest accrues at 1% over prime, payable monthly.
Outstanding balances and unpaid interest are due upon demand. During the
quarter, the Company
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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
obtained two $750,000 letters of credit under this facility to collateralize two
leases, one lease for additional office space and the other for a colocation
site.
Interest expense of $67,700 and $187,441, net of amounts capitalized to
real estate inventories totaling $214,218 and $-0-, was recognized during the
three months ended September 30, 2000 and 1999, respectively.
8. COMMITMENTS AND CONTINGENCIES:
The Company has unconditionally guaranteed payment of a first mortgage on
inventory sold in December 1999. As of September 30, 2000, $340,000 is
outstanding under the mortgage.
In September 2000, ColoConnection signed a 20-year lease for a 45,000
square foot facility in Santa Clara, California. This colocation facility, which
is ColoConnection's first site, is currently being renovated and will provide
finished space for multiple parties' telecommunications equipment. Upon
completion this facility will contain more than 1,200 racks and is estimated to
be operational in early calendar 2001. The Company has guaranteed
ColoConnection's obligations under that lease.
9. RELATED PARTY TRANSACTIONS:
MANAGEMENT FEES
Certain officers and executives of the Company own partnership interests in
one and two office buildings in 2000 and 1999, respectively. The Company
provides management and construction services to both partnerships for a fee.
Management and construction fees earned totaled $91,132 and $128,090 for the
six-month periods ended September 30, 2000 and 1999, respectively.
During the six-month periods ended September 30, 2000 and 1999, the Company
provided management services to the Fortune House Condominium Association. The
Company recorded as income $25,000 for each period relating to the services
performed.
Certain employees of the Company own an office building in which the
Company rents space. Rent paid to these employees totaled $22,500 and $0 for the
six-month periods ending September 30, 2000 and 1999, respectively.
10. INFORMATION ABOUT THE COMPANY'S OPERATING SEGMENTS:
The Company has three reportable business segments, telecom services,
telecom facilities management and real estate services. The telecom services
segment provides Internet and telecommunications infrastructure and managed
services. The telecom facilities management segment develops, manages and leases
facilities catering primarily to the telecommunications industry. The real
estate services segment constructs, manages, develops, and arranges for
financing of real estate projects. 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
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<PAGE> 14
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
performance based on the segment's net operating results. The following presents
information about reportable segments.
<TABLE>
<CAPTION>
TELECOM
FOR THE SIX MONTHS ENDED TELECOM FACILITIES REAL ESTATE
SEPTEMBER 30, 2000 SERVICES MANAGEMENT SERVICES TOTAL
------------------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue.................................... $ 500,699 $ 416,743 $ 9,384,252 $ 10,321,694
Loss from operations....................... (9,084,538) (2,656,967) (5,098,077) (16,839,582)
Net loss................................... (9,230,412) (2,612,033) (5,391,016) (17,233,461)
1999
Revenue.................................... -- -- $ 9,661,054 $ 9,661,054
Loss from operations....................... -- -- (1,055,372) (1,055,372)
Net loss................................... -- -- (1,493,924) (1,493,924)
ASSETS AS OF
September 30, 2000......................... $71,264,988 $20,738,768 $38,991,595 $130,995,351
March 31, 2000............................. -- -- 77,998,146 77,998,146
</TABLE>
11. SUBSEQUENT EVENTS:
On October 9, 2000, the Company entered into a joint venture with an
unrelated third party to construct and own the Technology Center of the
Americas, where 120,000 sq. ft. will be devoted to the TerreNAP(SM) Data Center,
housing the NAP of the Americas. On November 8, 2000, the joint venture obtained
loans and equity investments totaling $109 million. The Company has guaranteed
the bank loans in the amount of $60.7 million.
On October 2, 2000, the Company entered into a lease in Miami, Florida, to
house and operate an interim NAP of the Americas until the permanent NAP
facility is completed in the Technology Center of the Americas. Completion of
the permanent NAP of the Americas is expected in the second quarter of 2001.
* * * * *
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<PAGE> 15
ITEM 2. 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 Condensed Consolidated Financial Statements and 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 our partners,
political instability in countries in which we do business, our ability to
obtain proper funding for our business plan, decline in demand for our services
or products, the effect of general economic conditions, factors affecting the
growth of the Internet, telecommunications and real estate development and other
risks and uncertainties detailed from time to time in our Securities and
Exchange Commission filings. These factors 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.
Actual events or results may differ materially from those discussed in the
forward looking statements as a result of various factors, including, without
limitation, the forward-looking statements and associated considerations and the
risk factors section set forth in our Amendment No. 1 to Registration Statement
on Form S-3 filed with the SEC on September 1, 2000.
OVERVIEW
We are a multinational company that provides Internet and
telecommunications infrastructure and managed services, as well as a full range
of real estate services for traditional commercial and high-rise residential
real estate. We were founded in 1982 and on April 28, 2000,Terremark Holdings,
Inc. completed a reverse merger with AmTec, Inc., a public company.
Contemporaneous with the reverse merger we changed our corporate name to
Terremark Worldwide, Inc. and adopted "TWW" as our trading symbol. Historical
information of the surviving company is that of Terremark Holdings, Inc.
CERTAIN RISK FACTORS
Although we have experienced revenue growth in telecom service revenue and
contract construction revenue in the recent period, this growth may not be
indicative of our future operating results. Consequently, we believe that
period-to-period comparisons of our results of operation are not necessarily
meaningful and should not be relied upon as indicators of future performance.
Many of the factors that could cause our quarterly operating results to
fluctuate significantly in the future are beyond our control.
We conduct business internationally. Accordingly, our future operating
results could be materially adversely affected by a variety of factors, some of
which are beyond our control, including currency exchange fluctuation, longer
account receivable payment cycles and difficulty in collections, difficulty in
managing operations, taxes, restrictions on repatriation of earnings,
regulatory, political or economic conditions in a specific country or region,
trade protection measures and other regulatory requirements.
We believe that continued growth and profitability will require successful
expansion of our international operations and therefore we have committed
significant resources to such expansion. In order to successfully expand
international sales in fiscal 2001 and subsequent periods, we must strengthen
foreign operations and hire additional personnel. This will require significant
management attention and financial resources and could materially adversely
affect our operating results. To the extent that we are unable to effect these
additions in a timely manner, our international growth, if any, will be limited,
and our operating results could be materially adversely affected.
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<PAGE> 16
Our telecommunications business is subject to a number of specific risks.
Our customer service could suffer if we are unable to obtain satisfactory
services from local communications providers. Technological advances may make
our telecommunications operations obsolete. We need to obtain additional
licenses and approvals in order to expand our services and enter new markets.
Regulations of the People's Republic of China with respect to
telecommunications, including the fact that Internet regulation in China is
unclear, could also adversely impact our business. Certain of these factors are
also applicable to our telecommunications business in Latin America.
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 that 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.
TELECOM SERVICES
To capitalize on the growth of the Internet and the demand for
connectivity, we are developing, and when completed will own and operate, the
fifth Tier 1 Network Access Point in the U.S., which will be known as the "NAP
of the Americas," a TerreNAP(SM) Data Center. The Nap of the Americas will be
located in the Technology Center of the Americas, a facility that is currently
under construction and which will be managed by one of our subsidiaries. Other
Internet and telecommunications companies will have operations at the Technology
Center of the Americas. We expect that the Technology Center of the Americas
will be completed and the NAP of the Americas will be operational by the second
2001 calendar quarter.
In September 2000, we retained Telcordia Technologies, Inc. to design and
engineer the NAP of the Americas. The NAP of the Americas will provide a neutral
connection point where carriers can establish public and private connections
between and among their networks known as peering. In addition, the NAP of the
Americas will provide colocation facilities and a full menu of related managed
services, such as a network monitoring, caching, data back-up and off-site
storage services, performance reporting services, load balancing services,
network security services, and web hosting. We expect that the NAP of the
Americas will be the primary channel of Internet traffic from Central and South
America and the Caribbean to North America, Asia and Europe.
In order to serve the current demands of carriers, on October 2, 2000, we
entered into a short-term lease in Miami, Florida, for a temporary facility to
house and operate an interim Network Access Point until the TerreNAP(SM) Data
Center is completed.
We plan to establish similar facilities offering integrated Internet and
telecom services in Asia and Latin America. Specifically, we plan to deploy and
operate geographically distributed, TerreNAP(SM) Data Centers.
We have closed on and continue to look for acquisitions in both the Asian
and Latin American markets that provide us with the customer base, licenses and,
most importantly, the skilled management necessary to introduce Internet and
telecommunications infrastructure and managed services, including TerreNAP(SM)
Data Centers.
With this goal in mind, we have formed Terremark Asia and through the
acquisition of local providers, such as IXS.NET and Asia Connect, we currently
offer value-added Internet Protocol services, including unified messaging
services and fax over Internet Protocol, in the People's Republic of China, Hong
Kong and Taiwan. IXS.NET is an Internet telephony service provider with
operations in Hong Kong and Taiwan. On
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<PAGE> 17
October 16, 2000, we launched a unified messaging service in the People's
Republic of China, which allows users to receive faxes, voice-mail and e-mail
from any mobile or fixed-line phone or from a personal computer anywhere in the
world.
In August 2000, we formed Terremark Latin America and acquired 80% of
Spectrum Communications 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
Spectrum. We currently provide international long distance telephony through
Voice over Internet Protocol in Brazil and Peru. In Chile we offer basic
telephony services via wireless technologies. We expect to commence
telecommunications operations in Argentina by the end of calendar year 2000.
Revenues from telecommunication services are recognized as services are
provided.
TELECOM FACILITIES MANAGEMENT
In North America, we have initially focused on infrastructure solutions,
such as telecom hoteling and colocation services. This segment of our operations
develops and manages facilities used by Internet companies and
telecommunications service providers to house equipment and operate their
business.
In May 2000, we acquired Telecom Routing Exchange Developers, a developer
and operator of secure commercial buildings that house telecommunications and
Internet infrastructure, including switches, routers and servers. These
facilities, known as telecom hotels, provide the unfinished space in which
carriers, service providers, Internet Service Providers, Application Service
Providers, colocation providers and e-commerce companies install their equipment
to connect directly to high capacity fiber networks.
On October 9, 2000, we entered into a joint venture with an unrelated third
party to construct the Technology Center of the Americas, where 120,000 square
feet will be devoted to our TerreNAP(SM) Data Center in Miami, the NAP of the
Americas. On November 8, 2000, the joint venture obtained bank loans and equity
investments totaling $109.0 million. We have guaranteed the bank loans in the
amount of $60.7 million.
Our 80% owned subsidiary, ColoConnection, Inc., will be a carrier-neutral
provider of colocation facilities. Through this subsidiary, we plan to lease,
design, build and operate facilities where Internet businesses place their
equipment and their network facilities in order to privately interconnect with a
choice of business partners and customers. ColoConnection plans to operate sites
that are designed to facilitate each customer's connection to multiple carriers,
Internet service and voice and data providers.
In September 2000, ColoConnection signed a 20-year lease for a 45,000
square foot facility in Santa Clara, California. This colocation facility, which
is ColoConnection's first site, is currently being renovated and will provide
finished space for multiple parties' telecommunications equipment. Upon
completion this facility will contain more than 1,200 racks and is estimated to
be operational in early calendar 2001.
Revenues from telecommunication facilities management are recognized as
earned.
REAL ESTATE SERVICES
Our traditional commercial and mixed-use development activities include
concept development, acquisition of land, project design, equity and debt
financing arrangement, construction, management, contract construction, property
management, sales and leasing.
During October 2000, we merged Terremark Construction Services, Inc. and
Post-Shell Technology Contractors, Inc. to create a new company named Terremark
Technology Contractors, Inc. Terremark Technology Contractors will construct
state of the art buildings for the telecommunications industry.
Revenues from construction contract activities are recognized on the
percentage-of-completion method, measured by the percentage of costs incurred to
date to total estimated costs for each contract. This method is used because
management considers costs incurred to be the best measure of progress on these
contracts. Contract costs include all direct material and labor costs and
indirect costs related to contract performance
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<PAGE> 18
such as indirect labor, supplies, tools, repairs and depreciation. General and
administrative costs are charged to expense as incurred. The average duration of
a construction contract is 1-2 years.
RESULTS OF OPERATIONS
Six Months Ended September 30, 2000 Compared to Six Months Ended September 30,
1999
Revenue. Total revenue grew $0.6 million, or 6.2%, to $10.3 million for
the six months ended September 30, 2000 from $9.7 million for the six months
ended September 30, 1999. Telecom service revenue was $0.5 million for the six
months ended September 30, 2000. No revenue was recorded for the comparable
period during 1999. The increase was attributable to our managed services
offered in Latin America and Asia due to our acquisions of 80% of Spectrum
Communications and 100% of IXS.NET. Revenue from real estate sales decreased
$6.4 million, or 79%, from $8.1 million for the six months ended September 30,
1999 to $1.7 million for the six months ended September 30, 2000. Revenue for
the six months ended September 30, 1999 is attributable to the sale of 40
condominium units. As a result of fewer units being available for sale, only
eight units were sold during the comparable period in 2000. Commission income
earned from lease signings increased $0.8 million, from $0.1 million for the six
months ended September 30, 1999 to $0.9 million for the six months ended
September 30, 2000, due to the timing of lease renewals. Management fees charged
with respect to the management of telecom facilities, commercial and residential
property increased $0.2 million from $0.7 million for the six months ended
September 30, 1999 to $0.9 million for the six months ended September 30, 2000.
The increase is a result of the acquisition of various telecom and commercial
building management contracts. Contract construction revenue increased $5.3
million from $0.1 million for the six months ended September 30, 1999 to $5.4
million for the six months ended September 30, 2000. During 2000, we obtained 19
third party contract construction projects as a result of our acquisition of
Post Shell Technology Contractors, Inc., now known as Terremark Technology
Contractors Inc.
Cost of Telecom Services. Cost of telecom services was $0.7 million for
the six months ended September 30, 2000. No cost was recorded for the comparable
period during 1999. The increase was attributable to our managed services
offered in Latin America and Asia as a result of our acquisitions of Spectrum
Communications and IXS. NET.
Cost of Real Estate Sold. Cost of real estate sold decreased by $5.6
million, or 80.0%, from $7.0 million for the six months ended September 30, 1999
to $1.4 million for the six months ended September 30, 2000. The decrease is
attributable to the decrease in the number of condominium units sold as a result
of fewer units being available for sale.
Contract Construction Expenses. Contract construction expenses increased
to $5.1 million for the six months ended September 30, 2000 from $0.1 million
for the six months ended September 30, 1999. This increase is attributable to an
increase in the number of construction contracts in progress as a result of our
acquisition of Post Shell Technology Contractors during the period and the
percentage of completion of those projects. We do not currently anticipate any
losses on any of the individual contracts.
General and Administrative Expenses. During fiscal 2001, our focus has
been on the integration of our acquisitions and establishing internal operations
to support our Internet and telecom infrastructure services strategy. General
and administrative expenses increased by $9.6 million from approximately $2.5
million for the six months ended September 30, 1999 to approximately $12.1
million for the six months ended September 30, 2000. This increase is directly
attributable to our investment in personnel and corporate infrastructure and the
related additional operating expenses resulting from the April 28, 2000 merger
of AmTec and Terremark and the subsequent acquisitions of Telecom Routing
Exchange Developers, Post Shell Technology Contractors, Spectrum Communications,
Asia Connect and IXS.NET. We expect general and administrative expenses to
increase as we continue to expand our operations.
Sales and Marketing Expenses. Sales and marketing expenses increased $1.3
million or 130% for the six months ended September 30, 2000. The increase is
principally due to the expenses that were incurred in connection with the
promotion of the sale of Fortune House condominium units. During the six months
ended September 30, 2000, we were marketing two projects, while in 1999, we were
marketing only one condominium project.
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Depreciation and Amortization Expense. Depreciation and amortization
expense increased from $41,000 for the six months ended September 30, 1999 to
$5.6 million for the six months ended September 30, 2000. The increase resulted
primarily from amortization of intangible assets associated with the April 28,
2000 merger of AmTec and Terremark and subsequent the acquisitions of Telecom
Routing Exchange Developers, Post Shell Technology Contractors, Spectrum
Communications, Asia Connect and IXS.NET.
Equity in Losses of Affiliate. Equity in losses of affiliate were $0.2
million for the six months ended September 30, 2000. No losses were recorded for
the comparable period in 1999. Equity in losses in affiliate is derived from our
equity investment in IP.com.
Interest Expense. Interest expense decreased from $0.4 million for the six
months ended September 30, 1999 to $0.3 million for the six months ended
September 30, 2000 due to a decrease in the average debt balance outstanding.
Interest Income. Interest income increased from $0.1 million for the six
months ended September 30, 1999 to $0.3 million for the six months ended
September 30, 2000, due to an increase in our average cash balances invested.
Dividend on preferred stock. Dividends on our redeemable preferred stock
were $0.2 million for the six months ended September 30, 1999 compared to
$30,000 for the six months ended September 30, 2000. The preferred stock was
converted to shares of our common stock on April 28, 2000.
Net Loss. Overall net loss increased from $1.5 million for the six months
ended September 30, 1999 to $17.2 million for the six months ended September 30,
2000 as a result of the factors discussed above. During fiscal 2001, our focus
has been on the integration of our acquisitions and establishing internal
operations to support our focus on Internet and telecom infrastructure services.
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999
Revenue. Total revenue grew $4.3 million, or 102.4%, from $4.2 million for
the three months ended September 30, 1999 to $8.5 million for the three months
ended September 30, 2000. Telecom service revenue was $0.5 million during the
2000 period. No revenue was recorded in the three months ended September 30,
1999. The increase is attributable to the growth of our telecommunications
business as a result of our acquisitions of Spectrum Communications and IXS.NET.
Revenue from real estate sales decreased $2.3 million, or 67.6%, from $3.4
million for the three months ended September 30, 1999 to $1.1 million for the
three months ended September 30, 2000. Revenue for the three months ended
September 30, 1999 is attributable to the sale of 27 condominium units. As a
result of fewer units being available for sale, only five units were sold during
the comparable period in 2000. Commission income earned from lease signings
increased to $0.5 million from $8,000 for the three months ended September 30,
1999, due to the timing of lease renewals. Management fees charged with respect
to the management of commercial and residential property increased $0.2 million,
from $0.4 million for the three months ended September 30, 1999 to $0.6 million
for the three months ended September 30, 2000 as a result of the acquisition of
various telecom and office building management contracts. Construction contract
revenue increased $5.3 million from $6,000 for the three months ended September
30, 1999 to $5.3 million for the three months ended September 30, 2000. The
increase is attributable to the increase in the number of third party
construction projects obtained as a result of our acquisition of Post Shell
Technology Contractors.
Cost of Telecom services. Cost of telecom services was $0.7 million for
the three months ended September 30, 2000. No costs were recorded for the
comparable period during 1999.
Cost of Real Estate Sold. Cost of real estate sold decreased by $2.6
million, or 74.3%, from $3.5 million for the three months ended September 30,
1999 to $0.9 million for the three months ended September 30, 2000. The decrease
is attributable to the decrease in condominium units sold as a result of fewer
units being available for sale.
Construction Contract Expenses. Construction contract expenses were $5.0
million for the three months ended September 30, 2000. No expenses were recorded
for the comparable period in 1999. The increase in the
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<PAGE> 20
2000 period was attributable to the increase in the number of construction
contracts in progress and the percentage of completion of those projects. During
2000, we obtained 19 third party construction projects as a result of our
acquisition of Post Shell Technology Contractors. We do not currently anticipate
any losses on any of the individual contracts.
General and Administrative Expenses. During fiscal 2001, our focus has
been on the integration of our acquisitions and establishing internal operations
to support our focus on internet and telecom infrastructure services. General
and administrative expenses increased by $8.7 million, from $0.7 million for the
three months ended September 30, 1999 to approximately $8.8 million for the
three months ended September 30, 2000. This increase is directly attributable to
our investment in personnel and corporate infrastructure and the related
additional operating expenses resulting from the April 28, 2000 merger of AmTec
and Terremark and the subsequent acquisitions of Telecom Routing Exchange
Developers, Post Shell Technology Contractors, Asia Connect, Spectrum
Communications and IXS.Net. We expect general and administrative expenses to
increase over time as we continue to expand our operations.
Sales and Marketing Expenses. Sales and marketing expenses increased from
$0.4 million for the three months ended September 30, 1999 to $1.5 million for
the three months ended September 30, 2000. Sales and marketing expenses were
incurred in connection with the promotion of sales of condominium units.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased from $23,000 for the three months ended September 30, 1999 to
$4.0 million for the three months ended September 30, 2000. The increase
resulted primarily from amortization of intangible assets associated with the
April 28, 2000 merger of AmTec and Terremark, and the acquisitions of Telecom
Routing Exchange Developers, Post Shell Technology Contractors, Spectrum
Communications, Asia Connect and IXS.NET.
Interest Expense. Interest expense decreased from $0.2 million for the
three months ended September 30, 1999 to $0.1 million for the three months ended
September 30, 2000 due to a decrease in the average debt balance outstanding.
Interest Income. Interest income increased from $95,000 for the three
months ended September 30, 1999 to $160,000 for the three months ended September
30, 2000, due to an increase in cash balances.
Net Loss. Overall net loss increased from $0.7 million for the three
months ended September 30, 1999 to $11.7 million for the three months ended
September 30, 2000. The increase 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, Telecom
Routing Exchange Developers, Terremark Technology Contractors, Asia Connect,
Spectrum Communications and IXS.NET operations subsequent to their acquisition.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operations for the six months ended September 30,
1999 was $3.6 million compared to cash used in operations of $13.1 million for
the six months ended September 30, 2000, a decrease of $16.7 million. The
decrease in cash flows resulted primarily from the net loss.
Cash flows used in investing activities for the six months ended September
30, 1999 was $47,000 compared to $51.2 million provided by investing activities
for the six months ended September 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.
In April 2000, we invested $3.5 million for a 26.9% ownership interest in
Boca Technology Center, LLC, an entity formed for the purpose of acquiring and
operating the T-Rex Technology Center @ Boca, 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 T-Rex Technology Center @ Cleveland, a 475,000 square foot
telecom hotel facility in Cleveland, Ohio.
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Cash flows used in financing activities for the six months ended September
30, 1999 was $2.2 million compared to cash flows used by financing activities of
$36.2 million for the six months ended September 30, 2000, an increase of $34.0
million. The increase in cash used in financing activities resulted primarily
payments on loans of approximately $75.2 million, which is offset by $28.1
million provided from the sale of our common stock.
Historically, we have met our capital requirements primarily through debt
financing and operating cash flow. Debt financing primarily includes the
following : (1) loan from a commercial lender, secured by a first mortgage on
real estate that has been reduced from $2.7 million at March 31, 2000 to $1.1
million at September 30, 2000; (2) an unsecured loan from a corporation with a
balance at September 30, 2000 of approximately $1.5 million; (3) various vendor
financing arrangements, with various terms, secured by equipment totaling
approximately $3.0 million; and (4) a $2.3 million line of credit secured by
certain assets and personal guarantees of certain Terremark executives.
On July 25, 2000, we borrowed $7.5 million from an individual secured by a
first mortgage on a 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 cancelled our $7.5 million line of credit with a financial
institution.
On September 13, 2000, we negotiated a line of credit with a financial
institution, secured by our assets. Interest accrues at a floating rate of Prime
+ 1% on drawn balances, payable monthly. Outstanding balances and unpaid
interest are due upon demand. At September 30, 2000, no amounts had been drawn
on the line of credit. However, during the quarter, we obtained two $750,000
Letters of Credit under this facility to collateralize two leases, one for
additional office space and the other for a colocation site.
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 liquidity requirements, including scheduled debt repayments and
capital expenditures. However, the actual timing of the capital expenditures has
not been finalized and is dependent on a number of factors, including the
availability of adequate financing.
To facilitate our growth and to finance the launch or build-out of
additional markets, we will consider obtaining financing from various sources,
including additional vendor financing provided by equipment suppliers, project
financing from commercial banks and international agencies, bank lines of credit
and the sale of equity and debt securities. To the extent that we issue debt,
our leverage and debt service obligations will increase. Although we believe
that financing is available, there can be no assurance that we will be able to
obtain the same, or if available, the terms will be acceptable. In conjunction
with our recent acquisitions, we have assumed operating lease commitments,
vendor financing agreements and other debt obligations.
Our ability to make scheduled payments with respect to our indebtedness
will depend upon, among other things, our ability to implement our business
plan, and to expand our operations and to successfully develop our customer base
in our target markets and our future operating performance. Each of these
factors is, to a large extent, subject to economic, financial, competitive, and
regulatory and other factors, many of which are beyond our control.
As part of our business strategy, we intend to continue to evaluate
potential acquisitions, joint ventures and strategic alliances in companies that
own existing networks or companies that provide services that complement our
existing businesses. Such acquisitions may also require financing, which nay not
be available to us on acceptable terms.
INFLATION AND EXCHANGE RATES
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 and exchange rate
variations may have substantial effects on our results of operations and
financial condition. Generally, the effects of inflation in many Latin American
countries, including Brazil, Peru and Chile and in Asia, have been offset in
part by a devaluation of the local countries' currencies relative to the U.S.
dollar. Nevertheless, the devaluation of each country's currency may have an
adverse effect on us.
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<PAGE> 22
A substantial portion of our purchases of capital equipment and interest on
the related notes is payable in U.S. dollars. To date, we have not had
significant foreign currency exposure with third parties and generally intend to
pay them their services in U.S. dollars or in local currencies with a pricing
adjustment that is structured to protect us against the risk of fluctuations in
exchange rates. As a result, we have not entered into foreign currency hedging
transactions. In the future, if third party foreign currency exposure increases,
we may enter into hedging transactions in order to mitigate any related
financial exposure. However, a portion of sales to our customers will be
denominated in local currencies, and substantial or continued devaluation in
such currencies relative to the U.S. dollar could have a negative effect on the
ability of our customers to absorb the costs of devaluation. This could result
in our customers seeking to renegotiate their contracts with us or, failing
satisfactory renegotiation or defaulting on such contracts.
The carrying values of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses is a reasonable approximation of their
fair value.
We cannot predict whether interest rates will be at levels attractive to
prospective tenants, buyers or customers and any increase in interest rates
could affect our business adversely.
NEW ACCOUNTING PRONOUNCEMENTS
In September 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 September 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 Terremark's 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. hawse have no derivative
instruments.
In December 1999, the SEC issued Staff Accounting Bulletin 101, or SAB 101,
Revenue Recognition, which outlines the basic criteria that must be met to
recognize revenue and provides guidance for presentation of revenue and for
disclosure related to revenue recognition policies in financial statements filed
with the SEC. The adoption of SAB 101 did not have a material impact on our
financial position and results of operations.
In March 2000, the FASB issued Interpretation No. 44, or FIN 44, Accounting
for Certain Transactions Involving Stock Compensation -- an Interpretation of
APB 25. This Interpretation clarifies, the definition of employee for purposes
of applying Opinion 25, the criteria for determining whether a plan qualifies as
a noncompensatory plan, the accounting consequence of various modifications to
the terms of a previously fixed stock option or award, and the accounting for an
exchange of stock compensation awards in a business combination. This
Interpretation is effective July 1, 2000, but certain conclusions in this
Interpretation cover specific events that occur after either December 15, 1998,
or January 12, 2000. The adoption of certain of the conclusions of FIN 44
covering events occurring during the period after December 15, 1998 or January
12, 2000 did not have a material effect on our financial position and results of
operations. We do not expect that the adoption of the remaining conclusions will
have a material effect on the financial position and results of operations.
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<PAGE> 23
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On August 9, 2000, we issued 3,000,000 shares of Common Stock in exchange
for 80% of the shares of Spectrum Telecommunications Corp. The shares were
issued pursuant to Section 4(2) of the Securities Act of 1933, as amended, as
transactions not involving a public offering.
On August 15, 2000, we acquired IXS.NET, a California-based Internet
telephony service provider with operations primarily in the People's Republic of
China, Taiwan and Hong Kong. We previously held IXS.NET debt convertible into
25% of that company's equity. IXS.NET has approximately 40 sales people
throughout the People's Republic of China. In connection with the acquisition of
IXS.NET, we issued 412,500 shares of our common stock to IXS.NET shareholders.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
We held our 2000 Annual Meeting of Stockholders on September 21, 2000. The
holders of 191,198,179 shares of stock were entitled to vote at the Annual
Meeting.
At our 2000 Annual Meeting of Stockholders, our stockholders met to
consider and vote upon the following four proposals: (1) a proposal to elect our
directors to hold office for a one year term or until their successors are
elected and qualified; (2) a proposal to approve our 2000 Stock Option Plan; (3)
a proposal to approve the Company's 2000 Directors Stock Option Plan; and (4) a
proposal to ratify the reappointment of PricewaterhouseCoopers, LLP as our
independent public accountants for the fiscal year ending March 31, 2001.
PROPOSAL 1: The following individuals were elected as our Directors to
hold office until their successors are elected and qualified.
<TABLE>
<CAPTION>
FOR AGAINST WITHHELD
----------- ------- --------
<S> <C> <C> <C>
Manuel D. Medina...................................... 173,974,867 -- 254,920
Timothy Elwes......................................... 174,170,256 -- 59,531
Clifford J. Preminger................................. 174,174,506 -- 55,281
Marvin S. Rosen....................................... 174,174,506 -- 55,681
Joel A. Schleicher.................................... 174,169,956 -- 59,831
Kenneth I. Starr...................................... 174,174,406 -- 55,381
Joseph R. Wright, Jr.................................. 174,054,853 -- 174,934
</TABLE>
PROPOSAL 2: The proposal to approve our 2000 Stock Option Plan was
approved as follows:
<TABLE>
<CAPTION>
FOR AGAINST WITHHELD
----------- --------- --------
<S> <C> <C>
172,704,916 1,338,709 186,162
</TABLE>
PROPOSAL 3: The proposal to approve our 2000 Directors Stock Option Plan
was approved as follows:
<TABLE>
<CAPTION>
FOR AGAINST WITHHELD
----------- --------- --------
<S> <C> <C>
172,462,586.. 1,576,456 190,745
</TABLE>
PROPOSAL 4: The proposal to ratify the reappointment of
PricewaterhouseCoopers, LLP as our independent public accountants for the fiscal
year ending March 31, 2001 was approved as follows:
<TABLE>
<CAPTION>
FOR AGAINST WITHHELD
----------- --------- --------
<S> <C> <C>
174,154,504.. 34,731 40,552
</TABLE>
22
<PAGE> 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS:
<TABLE>
<S> <C> <C>
10.1 -- Employment Agreement by and between Terremark Holdings, Inc.
and Manuel D. Medina, dated March 10, 2000.
10.2 -- Employment Agreement by and between Terremark Holdings, Inc.
and Brian K. Goodkind, dated March 10, 2000.
10.3 -- Employment Agreement by and between Terremark Holdings, Inc.
and Irving Padron, dated March 27, 2000.
10.4 -- Employment Agreement by and between Terremark Holdings, Inc.
and Michael Katz, dated March 10, 2000.
10.5 -- Net Premises Lease by and between Rainbow Property
Management, LLC and ColoConnection, Inc., dated September
13, 2000.
27.1 -- Financial Data Schedule
</TABLE>
(B) REPORTS ON FORM 8-K:
None.
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<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Terremark Worldwide, Inc. has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
TERREMARK WORLDWIDE, INC.
<TABLE>
<S> <C>
DATE: November 14, 2000 By: /s/ MANUEL D. MEDINA
-----------------------------------------------------
Manuel D. Medina, Chairman of the Board, Chief
Executive Officer (Principal Executive Officer)
DATE: November 14, 2000 By: /s/ IRVING A. PADRON
-----------------------------------------------------
Irving A. Padron, Chief Financial Officer
(Principal Financial Officer)
</TABLE>
24
