-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EPZmaqIJT/VLYQgdp4dzHUmjnC34d4PNUd4ir42gzQEd+sijZlBS+VKizra9aL9b b/DuSHIg0M+AbXD2ZGqlJg== /in/edgar/work/20000814/0000950144-00-010251/0000950144-00-010251.txt : 20000921 0000950144-00-010251.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950144-00-010251 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TERREMARK WORLDWIDE INC CENTRAL INDEX KEY: 0000912890 STANDARD INDUSTRIAL CLASSIFICATION: [4813 ] IRS NUMBER: 840873124 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12475 FILM NUMBER: 698878 BUSINESS ADDRESS: STREET 1: 599 LEXINGTON AVE STREET 2: 49TH FL CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2123199160 MAIL ADDRESS: STREET 1: 599 LEXINGTON AVENUE STREET 2: 49TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: AMTEC INC DATE OF NAME CHANGE: 19970715 FORMER COMPANY: FORMER CONFORMED NAME: AVIC GROUP INTERNATIONAL INC/ DATE OF NAME CHANGE: 19950323 FORMER COMPANY: FORMER CONFORMED NAME: YAAK RIVER MINES LTD DATE OF NAME CHANGE: 19931001 10-Q 1 e10-q.txt TERREMARK WORLDWIDE 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. - ------------------------------------------------------------------------------ (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 ---------------------------------------------------------- (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 199,672,179 SHARES OF COMMON STOCK, $0.001 PAR VALUE, OUTSTANDING AS OF AUGUST 10, 2000. 2 TERREMARK WORLDWIDE, INC. INDEX
PAGE NO. -------- 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
1 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 - ------------------------------------------------------------------------------
JUNE 30, MARCH 31, 2000 2000 ----------------- ---------------- (UNAUDITED) 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 ============= =============
The accompanying notes are an integral part of these consolidated financial statements. 2 4 TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS - ------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED JUNE 30, --------------------------------- 2000 1999 ------------- ------------- (unaudited) 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 ============= =============
The accompanying notes are an integral part of these consolidated financial statements. 3 5 TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY ---------------------------------------------------------------------------------------- COMMMON STOCK PAR VALUE $.001 -------------------------- ADDITIONAL PREFERRED ISSUED PAID-IN RETAINED STOCK SHARES AMOUNT CAPITAL WARRANTS DEFICIT ------------ ----------- ------------ ------------ ------------ ------------ 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) ============ =========== ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 4 6 TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - ------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED JUNE 30, ------------------------------ 2000 1999 ------------ ----------- (UNAUDITED) 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 $ -- $ -- ============ ===========
5 7 TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 - ------------------------------------------------------------------------------- 1. BUSINESS AND ORGANIZATION Terremark Worldwide, Inc. and its subsidiaries (the "Company" or "TWW"), are engaged in telecom services, telecom facilities management and real estate services. The Company was founded in 1982. On April 28, 2000, the predecessor to the Company, Terremark Holdings, Inc. ("THI"), completed a reverse merger with AmTec, Inc. ("AmTec"), a public company. Historical information of the surviving company is that of THI. 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 8 TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 - ------------------------------------------------------------------------------- USE OF ESTIMATES The Company prepares its financial statements in conformity with generally accepted accounting principles. These principles require management to make estimates and assumptions that 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 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 10 TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 - ------------------------------------------------------------------------------- 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 11 TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 - ------------------------------------------------------------------------------- 3. ACQUISITIONS AMTEC, INC. On April 28, 2000, THI merged with and into AmTec, a publicly traded international telecommunications and services company, pursuant to an agreement dated November 24, 1999 and approved by the stockholders of AmTec on April 28, 2000 ("AmTec merger"). 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.
FOR THE THEE MONTHS ENDED JUNE 30, ----------------------------- 2000 1999 ----------- ----------- 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)
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 12 TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 - ------------------------------------------------------------------------------- POST SHELL TECHNOLOGY CONTRACTORS, INC. On June 23, 2000, the Company acquired all of the outstanding stock of Post Shell Technology Contractors, Inc. ("Post Shell"), a provider of construction services, in exchange for three million shares of common stock. The acquisition was accounted for using the purchase method of accounting. The purchase price was based on the market capitalization of the Company using an average closing price of $2.81 per common share for a period immediately before and after the announcement of the acquisition on June 26, 2000. The effect of this transaction on the Company's consolidated financial statements was not material. Acquisitions during the three month period ended June 30, 2000 are summarized as follows:
AMTEC T-REX POST SHELL ----------- ----------- ----------- 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 ----------- ----------- -----------
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 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 14 TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 - ------------------------------------------------------------------------------- 8. OTHER ASSETS Other assets consist of the following:
JUNE 30, MARCH 31, 2000 2000 ------------------ ------------------- (UNAUDITED) 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 ================== ===================
13 15 TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 - ------------------------------------------------------------------------------- 9. NOTES RECEIVABLE Notes receivable consist of the following:
JUNE 30, MARCH 31, 2000 2000 ------------------- ------------------- (UNAUDITED) $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 =================== ===================
14 16 TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 - ------------------------------------------------------------------------------- 10. NOTES PAYABLE Notes payable consist of the following:
JUNE 30, MARCH 31, 2000 2000 ----------- ----------- (UNAUDITED) 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 =========== ===========
15 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 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 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:
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 --------------- ------------- ------------ ----- ------------- $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 ========== =========
18 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 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.
JUNE 30, MARCH 31, 2000 2000 ------------------ ----------------- (UNAUDITED) 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 $ -- $ -- ============ ===========
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 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:
FOR THE THREE MONTHS ENDED JUNE 30, --------------------------- 2000 1999 ---- ----- 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 % ====== ======
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:
JUNE 30, MARCH 31, TERM 2000 2000 ----------- ------------------ ------------------ (UNAUDITED) 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 ================== ==================
21 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:
CAPITAL OPERATING LEASES LEASES ------------------ ------------------- 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 ==================
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 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 25 TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 - -------------------------------------------------------------------------------
TELECOM FOR THE THREE MONTHS ENDED REAL ESTATE FACILITIES TELECOM JUNE 30, 2000 SERVICES MANAGEMENT SERVICES TOTAL -------------------------- -------- ---------- -------- ----- 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
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 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 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 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 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. 28 30 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 29 31 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. 30 32 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. 31 33 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) 33 EX-27.1 2 ex27-1.txt TERREMARK 06/30/00
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS MAR-31-2000 MAR-31-2000 JUN-30-2000 0 0 0 0 11,873,046 0 0 0 108,058,515 0 0 0 0 0 95,779,555 0 0 1,824,782 541,479 0 0 0 0 0 0 (4,503,883) 0 0 0 (5,497,405) (.04) (.04)
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