<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 June 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.
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(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 52-1981922
------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2601 S. BAYSHORE DRIVE
MIAMI, FLORIDA 33133
----------------------------------------------------------
(Address of Principal Executive Offices and Zip Code)
(305) 856-3200
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(Registrant's Telephone Number, Including Area Code)
AmTec, Inc.
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(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 199,672,179 SHARES OF COMMON STOCK, $0.001 PAR
VALUE, OUTSTANDING AS OF AUGUST 10, 2000.
<PAGE> 2
TERREMARK WORLDWIDE, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements......................................... 2
Consolidated Balance Sheets as of June 30, 2000 (unaudited)........... 2
Consolidated Statements of Operations for the Three Months Ended June
30, 2000 and 1999 (unaudited)......................................... 3
Consolidated Statements of Stockholders' Equity for the Three Months
Ended June 30, 2000 (unaudited)....................................... 4
Consolidated Statements of Cash Flows for the Three Months Ended June
30, 2000 and 1999 (unaudited)......................................... 5
Notes to Consolidated Financial Statements (unaudited)................ 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................. 25
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings............................................ 31
ITEM 2. Changes in Securities and Use of Proceeds.................... 31
ITEM 4. Submission of Matters to a Vote of Security Holders.......... 31
ITEM 5. Other Information............................................ 31
ITEM 6. Exhibits and Reports on Form 8-K............................. 32
SIGNATURES............................................................ 33
</TABLE>
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000 AND MARCH 31, 2000 AND
FOR THE THREE-MONTH PERIODS ENDED
JUNE 30, 2000 AND 1999
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
2000 2000
----------------- ----------------
(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 outsanding 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.
2
<PAGE> 4
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
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<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.
3
<PAGE> 5
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
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<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
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COMMMON 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.
4
<PAGE> 6
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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<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)
Investments 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 $ -- $ --
============ ===========
</TABLE>
5
<PAGE> 7
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
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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.
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 comparative balances of March 31, 2000 were derived
from the Company's annual financial statements which were subject to an
independent audit.
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.
6
<PAGE> 8
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
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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 effect 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.
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 the
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.
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.
7
<PAGE> 9
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
-------------------------------------------------------------------------------
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.
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.
8
<PAGE> 10
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
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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:
Computer software 3 years
Furniture, fixtures and equipment 5 years
Leasehold improvements 5 years
Capital lease assets 3-5 years
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.
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.
9
<PAGE> 11
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
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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"). As a result of the merger, each
share of THI common stock was converted into approximately 63 shares of
TWW 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 the average closing price of
$0.99 per AmTec common share 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 $ (0.04) $ (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.
10
<PAGE> 12
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
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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.
4. 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.
11
<PAGE> 13
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
-------------------------------------------------------------------------------
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% 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.
5. 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.
6. 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.
7. REAL ESTATE INVENTORIES
Real estate inventories are summarized as follows:
JUNE 30, MARCH 31,
2000 2000
------------------ ----------------
(UNAUDITED)
Work in progress $ 9,162,340 $ 8,566,697
Completed inventories 2,710,706 3,230,609
------------------ ----------------
$ 11,873,046 $ 11,797,306
================== ================
12
<PAGE> 14
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
-------------------------------------------------------------------------------
8. 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>
13
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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>
14
<PAGE> 16
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>
15
<PAGE> 17
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
-------------------------------------------------------------------------------
In June 2000, the Company amended its $15 million line of credit with a
financial institution to reduce the maximum amount to $7.5 million.
Additionally, in July 2000, the Company obtained a $750,000 letter of
credit under its 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:
2001 $4,134,701
2002 1,525,606
2003 28,148
2004 30,941
2005 34,012
Thereafter 128,553
----------
Total $5,881,961
==========
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.
16
<PAGE> 18
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
-------------------------------------------------------------------------------
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.
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.
17
<PAGE> 19
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:
WEIGHTED
AVERAGE
EXERCISE
NUMBER PRICE
----------- ----------
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
===========
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:
Risk-free rate 5.27 - 6.56%
Volatility 80-135%
Expected Life 5 years
Expected Dividends 0%
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
$0.51-1.00 217,500 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>
18
<PAGE> 20
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:
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)
=============
19
<PAGE> 21
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
liability 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.
20
<PAGE> 22
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>
21
<PAGE> 23
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.
22
<PAGE> 24
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.
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 fees earned totaled $28,515 and $32,303
for the three month periods ended June 30, 2000 and 1999, respectively.
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, respectively, relating to the
services performed.
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.
23
<PAGE> 25
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TELECOM
FOR THE THREE MONTHS ENDED REAL ESTATE FACILITIES TELECOM
JUNE 30, 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 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. The Company does not currently own any
Fusion shares. As of June 30, 2000, the Company had advanced $2.5 million
to Spectrum under the line of credit.
* * * * *
24
<PAGE> 26
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 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 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.
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 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 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.
25
<PAGE> 27
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.
26
<PAGE> 28
SUBSEQUENT EVENT
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 from us. Spectrum is a Miami, Florida based provider
of telecommunications services with operations in Argentina, Brazil and Peru.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
which certain items of income and expenditures bear to total revenue:
THREE MONTHS ENDED JUNE 30,
----------------------------
2000 1999
------- -----
REVENUES:
Real estate sales....................... 35.9% 85.5%
Commission income....................... 18.2 2.2
Development fees........................ 18.6 6.1
Management fees......................... 19.5 4.7
Construction fees....................... 7.8 1.5
------- -----
Operating Revenues.................. 100 100
OPERATING EXPENSES:
Cost of real estate sold................ 29.7 64.7
Construction expenses................... 6.9 1.0
General and administrative expenses..... 179.0 33.9
Sales and marketing expenses............ 43.8 10.4
Depreciation and amortization expenses.. 87.4 0.3
------- -----
Total Operating Expenses............ 346.8 110.3
OPERATING INCOME (246.8) (10.3)
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 $35,000 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 facilities management or 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 73.7% from approximately $1.9 million for the three months ended
27
<PAGE> 29
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 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. 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.
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 $6.9 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 $53.5 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.
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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% 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 cancelled 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.
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
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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.
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
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. Terremark has no
derivative instruments.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
As part of the merger between AmTec, Inc. and Terremark Holdings,
Inc., a total of 78,308,842 of our common shares were issued to the
holders of Terremark common stock. In addition, pursuant to a stock
purchase agreement, Vistagreen Holdings (Bahamas), Ltd., Paradise
Stream (Bahamas) Limited and Moraine Investments, Inc. purchased a
total of 68,520,236 of our common shares for $28.1 million. The
transactions were completed on April 28, 2000. 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 May 31, 2000, the Company issued 8 million shares of Common Stock in
exchange for the assets and assumption of liabilities of Telecom
Routing Exchange Developers, Inc. 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 June 22, 2000, the Company issued 3 million shares of Common Stock
in exchange for the outstanding shares of Post Shell Technology
Contractors, Inc. The shares were issued pursuant to Section 4(2) of
the Securities Act of 1933, as amended, as transactions not involving a
public offering.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On April 28, 2000, a special meeting of the stockholders of the Company
was held to approve the merger of Terremark Holdings, Inc. with and
into AmTec, Inc. and the sale of shares to Vistagreen pursuant to a
Stock Purchase Agreement. Set forth below are the number of votes cast
for and against the proposal, together with the number of abstentions
and broker non votes with respect to merger and the Stock Purchase
Agreement.
Merger:
Abstentions and
For Against Broker Non Votes
--- ------- ----------------
21,206,599 67,053 54,610
Stock Purchase Agreement:
Abstentions and
For Against Broker Non Votes
--- ------- ----------------
21,184,344 76,326 67,592
ITEM 5. OTHER INFORMATION.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports of Form 8-K:
The Company filed a form 8-K for the change in the Company's
certifying accountant on May 3, 2000. No financial statements
of the Company were included with the 8-K.
The Company filed a form 8-K for the change in control of the
Company on May 15, 2000. Financial statements and pro forma
financial statements were included with the 8-K.
The Company filed a form 8-K for the entering into a contract
to acquire 80% of Spectrum Telecommunications Corp. in
exchange for shares of the Company on June 30, 2000. No
financial statements of the Company were included with the
8-K.
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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.
DATE: August 14, 2000 By: /s/ MANUEL D. MEDINA
------------------------------------------
Manuel D. Medina, Chairman of the Board,
Chief Executive Officer
(Principal Executive Officer)
DATE: August 14, 2000 By: /s/ IRVING A. PADRON
------------------------------------------
Irving A. Padron, Chief Financial Officer
(Principal Financial Officer)
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