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 December 31, 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 200,372,179 shares of common stock, $0.001 par
value, outstanding as of February 10, 2001.
2
TERREMARK WORLDWIDE, INC.
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements............................................... 2
Condensed Consolidated Balance Sheets as of December 31, 2000 (unaudited) and 2
March 31, 2000 ...............................................................
Condensed Consolidated Statements of Operations for the Three and Nine Months
Ended December 31, 2000 and 1999 (unaudited).................................. 3
Condensed Consolidated Statement of Changes in Stockholders' Equity for the
Nine Months Ended December 31, 2000 (unaudited)............................... 4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
December 31, 2000 and 1999 (unaudited)........................................ 5
Notes to Condensed Consolidated Financial Statements (unaudited).............. 7
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 18
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds.......................... 30
ITEM 6. Exhibits and Reports on Form 8-K................................... 30
SIGNATURES.................................................................... 31
1
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, MARCH 31,
2000 2000
-------------- --------------
(UNAUDITED)
ASSETS
Cash and cash equivalents $ 5,095,960 $ 3,391,977
Restricted cash 170,000 506,776
Accounts receivable 4,027,653 777,307
Contracts receivable 4,572,643 --
Real estate inventories -- 11,797,306
Investment in affiliates 1,368,354 --
Investments in unconsolidated entities 6,122,576 --
Notes receivable 626,433 2,755,413
Property, plant and equipment, net of accumulated depreciation
of $770,285 and $133,943, respectively 12,293,210 1,010,735
Other assets 4,128,783 1,977,373
Identifiable intangible assets and goodwill, net of accumulated
amortization of $9,364,337 and $-0-, respectively 75,270,612 --
Real estate held for sale 12,996,677 55,781,259
-------------- --------------
TOTAL ASSETS $ 126,672,901 $ 77,998,146
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 16,755,163 $ 72,784,079
Trade payables 9,370,071 4,083,039
Convertible debt 6,246,159 --
Capital lease obligations and other liabilities 9,795,746 581,683
Deferred revenue 403,736
Interest payable 484,328 72,914
-------------- --------------
TOTAL LIABILITIES 43,055,203 77,521,715
-------------- --------------
Minority interest 40,214
Convertible preferred stock: $1 par value, -0- and 4,176,693 shares
authorized, issued and outstanding respectively -- 4,176,693
Series G convertible preferred stock: $.001 par value, 20 and -0-
shares authorized, issued and outstanding, respectively 1 --
Common stock: $.001 par value, 300,000,000 shares authorized;
200,372,179 and 70,685,845 shares issued and outstanding,
respectively 200,372 70,686
Paid in capital 125,292,429 7,954,010
Retained deficit (43,974,955) (11,724,958)
Common stock warrants 2,059,398 --
Accumulated other comprehensive income 239 --
Commitments and contingencies (Note 9)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 83,577,484 476,431
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 126,672,901 $ 77,998,146
============== ==============
The accompanying notes are an integral part of these interim
consolidated financial statements.
2
4
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------- -------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
(UNAUDITED) (UNAUDITED)
Revenues
Telecom services $ 647,935 $ -- $ 1,148,634 $ --
Real estate sales 1,037,206 2,279,364 2,752,748 10,396,157
Commission income 2,795,183 440,095 3,664,741 570,176
Development and construction fees 1,237,730 341,666 2,104,918 1,025,000
Management fees 707,747 365,837 1,634,315 1,006,079
Construction contracts 8,691,092 358,852 14,133,231 392,185
-------------- -------------- -------------- --------------
Operating revenues 15,116,893 3,785,814 25,438,587 13,389,597
-------------- -------------- -------------- --------------
Expenses
Cost of telecom services 1,370,171 -- 2,029,102 --
Start up costs-telecom services 1,616,945 -- 1,616,945 --
Cost of real estate sold 700,076 1,695,550 2,134,572 8,778,438
Construction contract expenses 7,644,200 321,832 12,727,524 321,832
General and administrative expenses 8,989,423 2,549,979 21,080,565 5,188,859
Sales and marketing expenses 774,388 761,897 3,067,684 1,751,897
Depreciation and amortization 4,542,887 22,630 10,142,970 63,130
-------------- -------------- -------------- --------------
Operating expenses 25,638,090 5,351,888 52,799,362 16,104,156
-------------- -------------- -------------- --------------
Loss from operations (10,521,197) (1,566,074) (27,360,775) (2,714,559)
-------------- -------------- -------------- --------------
Other income (expense)
Equity in losses of affiliate (220,958) -- (424,707) --
Interest income 125,718 86,118 453,220 185,814
Interest expense (174,529) (194,662) (511,715) (613,478)
Other (expense) income (304,931) (94,382) (651,132) (4,979)
Dividend on preferred stock -- (104,417) (34,806) (313,252)
Minority interest 234,535 -- 435,096 --
Impairment of identifiable intangible assets (Note 12) (4,155,178) -- (4,155,178) --
-------------- -------------- -------------- --------------
Total other income (expense) (4,495,343) (307,343) (4,889,222) (745,895)
-------------- -------------- -------------- --------------
Loss before income taxes (15,016,540) (1,873,417) (32,249,997) (3,460,454)
Income taxes
Current tax expense -- -- -- --
Deferred tax expense -- -- -- --
-------------- -------------- -------------- --------------
Total income tax expense -- -- -- --
-------------- -------------- -------------- --------------
Net loss $ (15,016,540) $ (1,873,417) $ (32,249,997) $ (3,460,454)
============== ============== ============== ==============
Basic and diluted loss per common share $ (0.07) $ (0.03) $ (0.17) $ (0.05)
============== ============== ============== ==============
Weighted average common shares outstanding 200,372,179 70,685,845 184,655,075 70,685,845
============== ============== ============== ==============
The accompanying notes are an integral part of these interim
consolidated financial statements.
3
5
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY
-----------------------------------------------------------------------------------------
COMMON STOCK
PAR VALUE $.001 ACCUMULATED
--------------------- ADDITIONAL COMMON OTHER
PREFERRED ISSUED PAID-IN STOCK COMPREHENSIVE RETAINED
STOCK SHARES AMOUNT CAPITAL WARRANTS INCOME DEFICIT
----------- ----------- -------- ------------ ------------ ------------- ------------
Balance at March 31, 2000 $ 4,176,693 70,685,845 $ 70,686 $ 7,954,010 $ -- $ -- $(11,724,958)
Effect of AmTec merger:
Conversion of preferred stock (4,176,693) 7,853,985 7,854 4,168,839 -- -- --
Assumption of AmTec equity 1 38,289,500 38,289 46,923,782 1,687,038 -- --
Sale of common stock -- 68,722,349 68,722 28,054,203 -- -- --
Common stock issued in
acquisitions -- 14,412,500 14,413 37,531,045 -- -- --
Exercise of warrants -- 54,000 54 190,161 (21,640) -- --
Exercise of stock options -- 354,000 354 470,389 -- -- --
Foreign currency translation -- -- -- -- -- 239 --
Warrants issued 394,000
Net loss -- -- -- -- -- -- (32,249,997)
----------- ----------- -------- ------------ ------------ ------ ------------
Balance at December 31, 2000 (unaudited) $ 1 200,372,179 $200,372 $125,292,429 $ 2,059,398 $ 239 $(43,974,955)
=========== =========== ======== ============ ============ ====== ============
The accompanying notes are an integral part of these interim
consolidated financial statements.
4
6
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
DECEMBER 31, 2000
(UNAUDITED)
FOR THE NINE MONTHS ENDED
DECEMBER 31,
---------------------------
2000 1999
------------ ------------
(UNAUDITED)
Cash flows from operating activities:
Net loss $(32,249,997) $ (3,460,454)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities
Depreciation 624,399 $ 63,130
Amortization of loan costs to interest expense 119,086 95,594
Amortization of capital lease 44,052 --
Amortization of intangible assets and goodwill 9,514,113 --
Amortization of prepaid compensation 98,500 --
Impairment of identifiable intangible asset 4,155,178 --
Write-down of Terremark Centre -- 150,000
Minority interest in loss of subsidiary 40,214 --
Equity in losses of affiliate 424,707 --
Foreign currency translation 239 --
(Increase) decrease in:
Real estate inventories (1,199,371) 7,571,317
Restricted cash 366,776 13,134
Accounts receivable 29,610 (133,377)
Contracts receivable (4,572,643) --
Notes receivable 1,126,240 (255,082)
Other assets (977,113) (475,564)
Increase (decrease) in:
Trade payable and other liabilities 6,846,583 (331,427)
Interest payable 411,414 327,956
Deferred revenue 281,015 (100,000)
------------ ------------
Net cash (used in) provided by operating activities (14,916,998) 3,465,227
------------ ------------
Cash flows from investing activities:
Purchase of fixed assets (6,230,494) (241,520)
Investment in affiliate (442,837) --
Investment in unconsolidated entities (4,121,397) --
Proceeds from sale of Terremark Centre 55,781,259 --
Cash acquired in acquisitions 2,368,273 10,250
Receivable from Amtec -- (1,125,000)
------------ ------------
Net cash provided by (used in) investing activities 47,354,804 (1,356,270)
------------ ------------
5
7
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
DECEMBER 31, 2000
FOR THE NINE MONTHS ENDED
DECEMBER 31,
----------------------------
2000 1999
------------ ------------
(UNAUDITED)
Cash flows from financing activities:
New borrowings 13,762,403 2,230,000
Payments on loans (76,254,628) (5,757,253)
Convertible debt 2,996,159
Exercise of stock options 470,743 --
Sale of common stock 28,122,925 --
Warrants 168,575 --
------------ ------------
Net cash used in financing activities (30,733,823) (3,527,253)
------------ ------------
Net increase in cash 1,703,983 (1,418,296)
Cash and cash equivalents at beginning of period 3,391,977 2,808,033
------------ ------------
Cash and cash equivalents at end of period $ 5,095,960 $ 1,389,737
============ ============
SUPPLEMENTAL DISCLOSURE:
Interest paid (net of amount capitalized) $ 678,382 $ 329,698
============ ============
Taxes paid $ -- $ 2,083
============ ============
Assets acquired under capital lease $ 435,338 $ 194,934
============ ============
Non-Cash transaction:
During the quarter ended December 31, 2000, the Company reclassified
approximately $12,997,000 in real estate inventories to real estate held for
sale.
During the quarter ended December 31, 2000, the Company reclassified
approximately $3,250,000 from notes payable to convertible debt.
During the quarter ended December 31, 2000, the Company issued $394,000 in
warrants to a third party in lieu of cash compensation for a one year consulting
agreement.
The accompanying notes are an integral part of these
interim consolidated financial statements.
6
8
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A summary of the significant accounting principles and practices used
by the Company in preparing its consolidated financial statements
follows.
BASIS OF FINANCIAL STATEMENT PRESENTATION
These condensed consolidated financial statements as of December 31,
2000 and March 31, 2000, and for the three and nine-month periods ended
December 31, 2000 and 1999 are unaudited and have been prepared on a
basis substantially consistent with the audited consolidated financial
statements of Terremark Worldwide, Inc. and its subsidiaries
(collectively, "Terremark" or the "Company"). These statements reflect
all adjustments that are, in the opinion of management, necessary for a
fair presentation of the financial position and operating results for
the interim period. All adjustments are of a normal recurring nature.
The results of operations for the nine months ended December 31, 2000
are not necessarily indicative of the results for the entire year
ending March 31, 2001. These statements have been prepared in
accordance with the regulations of the Securities and Exchange
Commission ("SEC"), but omit certain information and footnote
disclosure necessary to present the statements in accordance with
generally accepted accounting principles. For further information,
refer to the Consolidated Financial Statements included in Terremark's
Amendment No. 1 to Form S-3 (File No. 333-37060) as of June 30, 2000
and March 31, 2000 and for the three-month periods ended June 30, 2000
and 1999 as filed with the SEC on September 1, 2000.
The Company's consolidated financial statements include the accounts of
the Company's wholly and majority-owned subsidiaries. All significant
intercompany balances and transactions are eliminated in consolidation.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior periods'
financial statements to conform to current presentation.
REVENUE AND PROFIT RECOGNITION
Revenues from telecommunication services are recognized as services are
provided.
Revenues from telecom facilities management are recognized as earned.
Revenues from construction contracts are recognized on the
percentage-of-completion method, measured by the percentage of costs
incurred to date to total estimated costs for each contract. This
method is used because management considers cost incurred to be the
best measure of progress on these contracts. The duration of a
construction contract generally exceeds one year.
7
9
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
Contract costs include all direct material and labor costs and indirect
costs related to contract performance such as indirect labor, supplies,
tools, repairs and depreciation. General and administrative costs are
charged to expense as incurred.
Provisions for estimated losses on uncompleted contracts are made in
the period in which losses are determined. Changes in job performance,
job conditions and estimated profitability, including those arising
from contract penalty provisions and final contract settlements may
result in revisions to costs and income and are recognized in the
period in which the revisions can be reasonably estimated. Accordingly,
it is possible that the Company's current estimates relating to
completion cost and profitability of its uncompleted contracts will
vary from actual results.
Billings in excess of costs and estimated earnings on uncompleted
contracts are classified as other liabilities and represent billings in
excess of revenues recognized.
OTHER COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," effective January 1, 1998.
Accordingly, gains and losses on translation of accounts of the
Company's non-U.S. operations are accumulated and reported as a
component of accumulated other comprehensive income in stockholders'
equity. At December 31, 2000 and 1999, the Company had other
comprehensive income of $239 and $0, respectively.
2. ACQUISITIONS:
AMTEC, INC.
On April 28, 2000, the predecessor to the Company, Terremark Holdings,
Inc. (THI) merged with and into AmTec, Inc., a publicly traded
international telecommunications and services company, pursuant to an
agreement dated November 24, 1999 and approved by the stockholders of
AmTec on April 28, 2000 ("AmTec merger"). As a result of the merger,
each share of THI common stock was converted into approximately 63
shares of the Company's common stock. The stockholders' equity in the
historical financial statements reflects this conversion as if it had
occurred at the beginning of each period.
The AmTec merger was accounted for using the purchase method of
accounting, with THI treated as the acquirer for accounting purposes.
As a result, the assets and liabilities of THI are recorded at
historical values and the assets and liabilities of AmTec are recorded
at their estimated fair values at the date of the merger. The purchase
price was based on market capitalization of AmTec using $0.99 per AmTec
common share, the average closing price of AmTec shares, for a period
immediately before and after announcement on November 9, 1999 of the
proposed merger, plus certain merger related costs.
8
10
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
The following unaudited condensed results of operations for the nine
months ended December 31, 2000 and 1999 were prepared assuming the
merger occurred on April 1, 2000 and 1999, respectively.
FOR THE NINE MONTHS ENDED
DECEMBER 31,
------------------------------
2000 1999
------------- -------------
Revenue $ 23,311,000 $ 13,390,000
Net loss $ (34,181,000) $ (11,079,000)
Basic and diluted net loss per share $ (0.16) $ (0.06)
The amounts for the nine months ended December 31, 2000 include AmTec's
actual results for the period April 1, 2000 to April 28, 2000. The
amounts for the nine months ended December 31, 1999 include AmTec's
actual results for the nine months ended December 31, 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 on April 1, 2000 and 1999, nor
is it indicative of the results of future combined operations.
9
11
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
3. CONTRACTS RECEIVABLE:
Contracts receivable consist of the following:
DECEMBER 31, MARCH 31,
2000 2000
------------ ---------
(UNAUDITED)
Completed contracts $ 793,241 $ --
Contracts in progress 2,733,359 --
Retainage 1,046,043 --
------------ ----
4,572,643 --
Less: allowance for doubtful
collection -- --
------------ ----
$ 4,572,643 --
============ ====
4. REAL ESTATE INVENTORIES:
Real estate inventories consist of the following:
DECEMBER 31, MARCH 31,
2000 2000
------------ ------------
(UNAUDITED)
Work in progress $ -- $ 8,566,697
Completed inventories -- 3,230,609
------------ ------------
$ -- $ 11,797,306
============ ============
10
12
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
5. OTHER ASSETS:
Other assets consist of the following:
December 31, March 31,
2000 2000
------------ ------------
(unaudited)
Prepaid expenses and other $ 2,791,639 $ 1,057,340
Loan costs, net of accumulated
amortization of $106,215 and $1,095,595 173,072 368,946
Prepaid investment costs 410,591
Option agreement 428,000
Reimbursable construction costs and
other expenses 736,072 140,496
------------ ------------
$ 4,128,783 $ 1,977,373
============ ============
11
13
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
6. NOTES RECEIVABLE:
Notes receivable consist of the following:
DECEMBER 31, MARCH 31,
2000 2000
------------ ------------
(UNAUDITED)
Note receivable from a corporation, $200,000
principal, interest accrues annually at 8%.
Interest and principal due upon demand. $ 232,702 $ 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. 393,731 369,321
$3,000,000 million line of credit to Spectrum
Telecommunications Corp., $0 and $1,000,000 principal
outstanding respectively, interest accrues annually at 10%. -- 1,002,740
Notes receivable from AmTec, Inc., $0 and $1,125,000
principal, outstanding, respectively interest accrues
annually at 10%. Interest and principal due July 1, 2000. -- 1,162,705
---------- ------------
$ 626,433 $ 2,755,413
========== ============
12
14
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
7. NOTES PAYABLE:
Notes payable consist of the following:
DECEMBER 31, 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
May 2001, with an option for a six month
extension. Guaranteed by a shareholder. $ 395,118 $ 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%. 257,233 272,397
Note payable to an individual, collateralized by
a first mortgage on land, interest accrues at 12%
and is payable monthly. Principal due March 1, 2001. 7,500,000 --
Note payable to a vendor, collateralized by
subscriber communication units and equipment
interest accrues at LIBOR + 1%, principal
and interest are payable in varying semiannual installments
through October 2001. 269,334 --
Note payable to a vendor, collateralized by
telecommunications equipment and infrastructure,
Interest accrues at 7.5%, principal and interest are payable
in varying installments through July 2004. 443,644 --
Note payable to a vendor, collateralized by certain
telecommunications equipment. Interest accrues at 11%,
principal and interest are due November 2001. 590,570
Note payable to a vendor, collateralized by certain
telecommunication equipment, interest accrues at 10.5%,
interest and principal are payable monthly
from April 1, 2001 through December 2003. 275,329 --
13
15
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
7. NOTES PAYABLE (CONTINUED):
2000 2000
------------ ------------
(UNAUDITED)
Note payable to a vendor, collateralized by certain telecommunications
equipment, interest accrues at 11%, principal and interest are due June 2002. 1,104,811
Notes payable to an individual, interest accrues at 8%, with principal and
interest due monthly through March 2001. 169,124 --
$2.25 million line of credit facility with a financial institution,
collateralized by (1) certain assets and personal guarantees of a
stockholder of the Company and certain executives of the Company.
Interest accrues at 1% over prime, payable monthly, with principal
balance due June 2001. 2,250,000 --
$5 million line of credit facility with a financial institution,
collateralized by (1) certain assets of the Company and (2) a corporate
guaranty. Interest accrues at 1% over prime, payable monthly, with
principal balance due upon demand. 3,500,000
$15 million line of credit facility with a financial institution,
collateralized by a first mortgage on real estate. Interest accrues at
1% over prime, payable monthly. Line of credit reduced to $7.5 million
in 2000 and cancelled in July 2000. -- 14,631,700
Notes payable to a financial institution, collateralized by a first mortgage on
Terremark Centre and all future rents of the property. Principal and interest
payable monthly based on a 20-year amortization at 7.74% until May 15, 2001 and
at an adjustable rate thereafter. -- 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
------------ ------------
$ 16,755,163 $ 72,784,079
============ ============
14
16
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
Interest expense of $174,529 and $194,662 net of amounts capitalized to
real estate inventories totaling $145,747 and $0, was recognized during
the three months ended December 31, 2000 and 1999, respectively.
8. CONVERTIBLE DEBT
On December 29, 2000 the Company closed on $6,246,159 of subordinated
convertible debt. Interest accrues at 13% and is payable quarterly
beginning March 31, 2001. Principal and unpaid interest are due on
December 31, 2005. Each debenture is convertible into the Company's
stock at 120% of the 20-day average trading price prior to the closing.
Prepayment by the Company is permitted, but will entitle holders to
warrants or a premium over their outstanding principal and interest
based upon the following schedule:
YEAR REDEMPTION PRICE
2001 105%
2002 104%
2003 103%
2004 102%
2005 100%
Subsequent to December 31, 2000 the Company sold an additional
$1,767,700 of convertible debt. Approximately 82.0% of the amount
closed is payable to management and directors.
9. COMMITMENTS AND CONTINGENCIES:
The Company has unconditionally guaranteed payment of a first mortgage
on inventory sold in December 1999. As of December 31,2000, $340,000 is
outstanding under the mortgage.
On October 2, 2000, the Company, entered into a short-term lease in
Miami, Florida, for a temporary facility to house and operate an
interim Network Access Point until the TerreNAP(SM) Data Center is
completed.
On October 16, 2000, the Company, signed a 20 year lease in the
Technology Center of the Americas ("TECOTA"), in Miami, Florida, to
house and operate the TerreNAP(SM) Data Center, a tier one Network
Access Point. This facility is currently under construction and will
provide a carrier neutral facility to facilitate Internet backbone
interconnectivity (peering). Upon completion, the TerreNAP(SM) Data
Center will contain approximately 120,000 square feet of raised floor
space and is expected to be operational by the third calendar quarter
of 2001.
In November 2000, Technology Center of the Americas LLC, an entity that
the Company has a 1% member interest in entered in to a $60.6 million
construction note payable with a financial institution, which is
secured by a first lien on TECOTA. Interest is payable monthly at the
Citibank N.A. prime rate +1.5%, initially from the interest reserve and
then from operations. The Company has unconditionally guaranteed the
completion of TECOTA and the repayment of the loan.
10. RELATED PARTY TRANSACTIONS:
MANAGEMENT FEES
Certain officers and executives of the Company owned partnership
interests in one and two office buildings during the periods ending
December 31, 2000 and 1999, respectively. The Company provides
management and construction services to both partnerships for a fee.
Management and
15
17
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
construction fees earned totaled $100,735 and $216,295 for the
nine-month periods ended December 31, 2000 and 1999, respectively.
During the nine-month periods ended December 31, 2000 and 1999, the
Company provided management services to the Fortune House Condominium
Association. The Company recorded as income $37,500 for each period
relating to the services performed.
Certain employees of the Company own an office building in which the
Company rents space. Rent paid to these employees totaled $33,837 and
$0 for the nine-month periods ending December 31, 2000 and 1999,
respectively.
11. INFORMATION ABOUT THE COMPANY'S OPERATING SEGMENTS:
As of December 31, 2000, the Company had three reportable business
segments telecom services, telecom facilities management and real
estate services. The telecom services segment provides Internet and
telecommunications infrastructure and managed services. The telecom
facilities management segment develops, manages and leases facilities
catering primarily to the telecommunications industry. The real estate
services segment constructs, develops, financing and manages real
estate projects. The Company's reportable segments are strategic
business operations that offer different products and services. They
are managed separately because each business requires different
expertise and marketing strategies.
The accounting policies of the segments are the same as those described
in significant accounting policies. Revenues generated among segments
are recorded at rates similar to those recorded in third-party
transactions. Transfers of assets and liabilities between segments are
recorded at cost. The Company evaluates performance based on the
segment's net operating results. The following presents information
about reportable segments.
TELECOM
FOR THE NINE MONTHS ENDED TELECOM FACILITIES REAL ESTATE
DECEMBER 31, SERVICES MANAGEMENT SERVICES TOTAL
- ------------------------- -------------- -------------- -------------- -------------
2000
Revenue $ 1,148,634 $ 2,863,443 $ 21,426,510 $ 25,438,587
Loss from operations (18,273,354) (2,809,727) (6,277,694) (27,360,775)
Net loss (18,410,857) (6,902,237) (6,936,903) (32,249,997)
1999
Revenue -- -- $ 13,389,597 $ 13,389,597
Loss from operations -- -- (2,714,599) (2,714,599)
Net loss -- -- (3,460,454) (3,460,454)
ASSETS, AS OF
December 31, 2000 $ 62,675,481 $ 21,778,715 $ 42,218,705 $ 126,672,901
March 31, 2000 -- -- 77,998,146 77,998,146
16
18
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
12. SUBSEQUENT EVENTS:
On January 12, 2001, the Company entered into an agreement to sell on
February 23, 2001, certain of its telecom facilities management operations to MP
Telecom, LLC ("MP"), an entity owned by certain officers and a director of the
Company.
Assets to be sold include all of the Company's equity ownership
interests (including any rights to "promote" interests) in the T-Rex branded
"Telecom Hotel" projects located in Cleveland, Ohio; Boca Raton, Florida;
Hartford, Connecticut; Sterling, Virginia; and Chicago, Illinois, together with
assets owned by Telecom Routing Exchange Developers, Inc., a wholly-owned
subsidiary of the Company. As part of the transaction, the Company will retain
its management rights relating to TECOTA, in which the NAP of the Americas will
be located. The purchaser will convey to the Company its rights to promote and
equity interests in TECOTA. The Company has conditionally transferred to the
purchaser its rights under the TECOTA leasing agreement predicated on the
purchaser meeting certain leasing goals, and will transfer the right to leasing
commissions for TECOTA. As a result of these transactions, the Company will own
100% of the promote and 1.0% of the equity interests in TECOTA.
As part of the transaction, MP will convey to the Company 1,400,000
shares of the Company's common stock, representing a portion of 8,000,000 shares
issued by the Company to MP and its affiliates in conjunction with the Company's
June 2000 T-Rex acquisition. MP will also convey its minority interest to the
Company's co-location business. The Company will pay $900,000 to the purchaser
in connection with the transaction. The principals of MP and various executive
officers of the Company have mutually agreed that, until December 25, 2001, each
group will limit, in the aggregate, the number of shares of the Company sold by
them during any trading day.
As a result of the pending transaction, the Company recognized an
impairment of intangible assets of approximately $4,155,178 relating to
management contracts to be sold for the period ended December 31, 2000.
The Company has entered into a contract to sell Fortune House II, a
proposed condominium/hotel project in Ft. Lauderdale Beach, Florida for $18.5
million. The purchaser has the right to cancel the contract without liability
until March 7, 2001. In the event the purchaser does not cancel the contract,
the Company anticipates closing on March 31, 2001.
* * * * *
17
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the
information contained in our Condensed Consolidated Financial Statements and
elsewhere in this filing. The information is intended to facilitate an
understanding and assessment of significant changes and trends related to our
financial condition and results of operations.
This report and other written reports and oral statements made from
time to time by us may contain so-called "forward looking statements," all of
which are subject to risks and uncertainties. You can identify these
forward-looking statements by the use of words such as "expects", "plans",
"will", "estimates", "forecasts", "projects" and other words of similar meaning.
You can also identify them by the fact that they do not relate strictly to
historical or current facts. These statements are likely to address our growth
strategy, financial results and development programs. You must carefully
consider any such statement and should understand that many factors could cause
actual results to differ from our forward-looking statements. Factors that might
cause such a difference include, without limitation, relationships with our
partners, political instability in countries in which we do business, our
ability to obtain proper funding for our business plan, decline in demand for
our services or products, the effect of general economic conditions, factors
affecting the growth of the Internet, telecommunications and real estate
development and other risks and uncertainties detailed from time to time in our
Securities and Exchange Commission filings. These factors could include
inaccurate assumptions and a broad variety of other risks and uncertainties,
including some that are known and some that are not. No forward-looking
statement can be guaranteed and actual future results may vary materially.
Actual events or results may differ materially from those discussed in
the forward looking statements as a result of various factors, including,
without limitation, the forward-looking statements and associated considerations
and the risk factors section set forth in our Amendment No. 1 to Registration
Statement on Form S-3 filed with the SEC on September 1, 2000.
OVERVIEW
We are a multinational company that provides Internet Infrastructure
and Managed Services. We were founded in 1982 and on April 28, 2000, Terremark
Holdings, Inc. completed a reverse merger with AmTec, Inc., a public company.
Contemporaneous with the reverse merger we changed our corporate name to
Terremark Worldwide, Inc. and adopted "TWW" as our trading symbol. Historical
information of the surviving company is that of Terremark Holdings, Inc .
We are the owner and, when it is completed, will be the operator of the
NAP of the Americas, the fifth Tier-1 Network Access Point ("NAP") in the world,
and as a result, we have become an internationally recognized Internet
infrastructure and managed services provider. Our strategy is to leverage our
experience as the owner and operator of the NAP of the Americas by developing
and operating TerreNAP(SM) Data Centers in Latin America and Asia. TERRENAP(SM)
Data Centers provide peering, colocation and managed services to carriers,
Internet service providers, other Internet companies and enterprises. The NAP of
the Americas will be the premier TerreNAP(SM) Data Center and is located in
Miami, Florida.
During the quarter ended December 31, 2000, we continued to focus on
this strategy, particularly on the operation of the interim NAP of the Americas
and the development of the permanent NAP of the Americas, while evaluating all
of our operations to ensure that they directly support that strategy. Our other
operations traditionally have provided a full range of real estate services for
traditional commercial and high-rise residential real estate. Our plan in
connection with this review is to only retain non-core operations that generate
positive cash flow or provide support services to our strategy.
18
20
TELECOM SERVICES
To capitalize on the growth of the Internet and the demand for
connectivity, we own, are developing, and when completed will operate, the fifth
Tier 1 Network Access Point in the U.S., which will be known as the "NAP of the
Americas" a TerreNAP(SM) Data Center. The NAP of the Americas will occupy
120,000 gross usable square feet of the Technology Center of the Americas (known
as TECOTA), a 750,000 square foot facility currently under construction in
downtown Miami and which will be managed by one of our subsidiaries. Our lease
for the NAP expires in 2020. Other Internet and telecommunications companies
will have operations at the Technology Center of the Americas. We expect that
the Technology Center of the Americas will be completed, and the NAP of the
Americas will be operational by the third calendar quarter of 2001.
To be successful in today's environment, a Tier-1 NAP must have the
backing of key industry players. Terremark was selected to own and operate the
NAP of the Americas by a consortium of over 90 entities, which include some of
the top telecommunications industry members, such as AT&T, Global Crossing,
Level 3 Communications, Cable & Wireless, 360 Networks, Sprint, FPL FiberNet,
NetRail, PanAmSat, Williams Communications and EPIK Communications.
The NAP of the Americas will provide a neutral connection point where
carriers can establish public and private connections between and among their
networks, which is known as peering. The NAP of the Americas also provides
premium-class space where Internet businesses, telecommunications providers and
enterprises place their equipment and their network facilities in order to be
close to the peering connections that take place at the NAP. This is known as
colocation. In addition, the NAP of the Americas will provide a full menu of
related managed services, such as a network monitoring, caching, data back-up
and off-site storage services, performance reporting services, load balancing
services, network security services, and web hosting. We expect that the NAP of
the Americas will be the primary channel of Internet traffic from Central and
South America and the Caribbean to North America, Asia and Europe.
We have contracted Telcordia Technologies, Inc., which was instrumental
in the design and operation of two of the other four Tier-1 NAPs in the world,
and which is a wholly owned subsidiary of SAIC, to work together with us to
enable the design and operations of the NAP of the Americas. Key support that we
have and will continue to receive from Telcordia include: recommendations on the
peering technology to be deployed in the NAP, design and implementation of key
business processes, market and product strategy, and resources used to set-up
and operate the interim NAP facility. Our long-term strategy is to continue to
work with Telcordia and leverage their expertise and resources to enable our
in-house personnel to obtain the knowledge required to operate the NAP and
deploy TERRENAP(SM) Data Centers. On December 30, 2000, we launched operations
of the interim NAP of the Americas on the basis of a short-term lease. The
interim facility, which has has been live and operational since that date, and
is staffed 24-hours a day, seven days a week, is providing connectivity to
global carriers, ISPs, new technology entrants and members of the NAP of the
Americas consortium. The interim NAP of the Americas uses the same peering
architecture that will be used at the permanent NAP.
We intend to use this technology, the knowledge gained through our
long-term relationship with Telcordia, our 20 years of experience dealing with
Latin America and Asia, and the expertise of our employees, many of whom were
formerly executives with GTE, Nortel, AT&T and Global Crossing, for example, to
roll out additional TerreNAP(SM) Data Centers across Latin America and Asia.
As part of our expansion of TerreNAP(SM) Data Centers into emerging
markets, on December 8, 2000, we opened our first Asia-based TerreNAP(SM) Data
Center in Beijing, China. This facility, called TerreNAP(SM) Beijing, is a
partnership with BroadOnline, a wholly Chinese owned networking services
provider. It is located where the fiber networks in Northern China connect with
19
21
domestic and international Internet gateways and is one of the fastest, and
most reliable connections to the Internet available in China. TerreNAP(SM)
Beijing is one of the only China-based data centers with Tier-1, direct access
to the Internet backbone. We plan to open similar facilities in other Chinese
cities in the future.
In August 2000, we formed Terremark Latin America and acquired 80% of
Spectrum Communications Telecommunications Corp., a privately held, Miami-based
provider of telecommunications services with operations in Brazil, Chile and
Peru. We have an option, until February 2002, to acquire the remaining 20% of
Spectrum. We currently provide international long distance telephony through
Voice over Internet Protocol in Brazil and Peru. In Chile, we offer basic
telephony services via wireless technologies. Local management of these
operations is currently reviewing the potential for TerreNAP Data Centers in
these markets.
On December 20, 2000, we entered into a Research and Development
Agreement with Florida International University ("FIU") to work together,
through FIU's Telecommunications and Information Technology Institute, on
research and development projects. FIU and we will use FIU's AMPATH network to
study current and emerging Internet and telecommunications technologies,
including Internet Protocol Version 6, Quality of Service, multicasting and
optical switching. These projects will enable us to study advanced network
technologies before they are introduced into production networks.
As part of the Research and Development Agreement, the NAP of the
Americas will serve as the home of the AMPATH Network and South Florida's
Internet2 GigaPoP. The aim of AMPATH, a project developed by FIU, is to
interconnect the research and education networks in South America, Central
America, the Caribbean, Mexico and other countries to U.S. and non-U.S. research
and education networks via the Internet2 Abilene network.
Revenues from telecommunication services are recognized as services are
provided.
TELECOM FACILITIES MANAGEMENT
In North America, our telecom facilities management segment initially
focused on infrastructure solutions, such as telecom hoteling and colocation
services. This segment of our operations developed and managed facilities used
by Internet companies and telecommunications service providers to house
equipment and operate their business.
On November 8, 2000, we purchased a 0.5% member interest in a third
party joint venture to construct the TECOTA. As a result of our efforts, that
venture obtained $48 million of equity and $61 million of construction financing
to complete this project. We have guaranteed the bank loans in the amount of $61
million.
In connection with our stated plan of reviewing non-core operations, we
determined that the development of telecom hotels, while an attractive
opportunity, was not consistent with the development and operation of the NAP of
the Americas and of TerreNAP(SM) Data Centers in emerging markets. On January
12, 2001, we signed an agreement to sell certain of our telecom facilities
management operations on February 23, 2001, to MP Telecom, LLC ("MP"), an entity
owned by certain officers and a director of the Company. As part of the
transaction, the officers resigned from our management team and Clifford
Preminger resigned from our Board. We will retain our rights relating to the
management of TECOTA, home of the NAP of the Americas and have conditionally
transferred to MP rights under the related leasing agreement, predicated on MP
meeting certain leasing goals. MP will convey to us its rights to certain
promote and equity interests in TECOTA. Because of these transactions, we will
own 100% of the promote and 1.0% of the equity interests in TECOTA.
Assets to be sold include the "T-Rex" name, as well as all of our
equity ownership interests (including any rights to "promote" interests) in the
T-Rex branded "Telecom Hotel" projects located in Cleveland, Ohio; Boca Raton,
Florida; Hartford, Connecticut; Sterling, Virginia; and Chicago, Illinois,
together with all of the assets owned by Telecom Routing Exchange Developers,
Inc., and our wholly owned subsidiaries.
As part of the transaction, MP will also convey to us a total of
1,400,000 shares of our common stock, representing a portion of the 8,000,000
shares we issued to MP and its affiliates in conjunction with our June 2000
acquisition of Telecom Routing Exchange Developers, Inc. MP will also convey to
us its rights to our colocation business. We also will pay $900,000 to MP in
connection with the transaction. The principals of MP and various of our
executive officers have mutually agreed that, until December 25, 2001, each
group will limit, in the aggregate, the number of our shares sold by them during
any trading day.
20
22
In September 2000, ColoConnection, our majority-owned subsidiary signed
a 20-year lease for a 45,000 square foot facility in Santa Clara, California
which we have guaranteed. This colocation facility is currently being renovated
and will provide finished space for multiple parties' telecommunications
equipment. In connection with our stated plan of reviewing non-core operations,
we are actively marketing the sale of this entity.
Revenues from telecommunication facilities management are recognized as
earned.
REAL ESTATE SERVICES
Our management has over 20 years experience in concept development,
acquisition of land, project design, equity and debt financing arrangement,
construction, management, contract construction, property management, sales and
leasing. We believe our experience provides us with a competitive advantage in
developing and operating the NAP of the Americas and TerreNAP(SM) Data Centers.
As part of our new strategy, we intend to refocus this segment of our operations
to support the development and operation of TerreNAP(SM) Data Centers.
During October 2000, we merged Post-Shell Technology Contractors, Inc.
into Terremark Construction Services, Inc. and changed the name of the combined
entity to Terremark Technology Contractors, Inc. Terremark Technology
Contractors will direct its activities to build outs for the telecommunications
industry. Revenues from construction contract activities are recognized on the
percentage-of-completion method, measured by the percentage of costs incurred to
date to total estimated costs for each contract. This method is used because
management considers costs incurred to be the best measure of progress on these
contracts. Contract costs include all direct material and labor costs and
indirect costs related to contract performance such as indirect labor, supplies,
tools, repairs and depreciation. General and administrative costs are charged to
expense as incurred. Generally the duration of a construction contract exceeds
one year.
CERTAIN RISK FACTORS
The nature of our operations changed as a result of the April 28, 2000
merger between AmTec, Inc. and Terremark Holdings, Inc. Our operations continue
to evolve as we develop our Internet infrastructure and managed services
business. We began offering Internet Infrastructure and managed services in
2000. Due to our short operating history, our business model is still evolving.
Consequently, we believe that period-to-period comparisons of our results of
operation may not be necessarily meaningful and should not be relied upon as
indicators of future performance. We have experienced revenue growth in the
recent period, but this growth may not be indicative of our future operating
results. Many of the factors that could cause our quarterly operating results to
fluctuate significantly in the future are beyond our control. We believe that we
will continue to experience net losses on a quarterly and annual basis for the
foreseeable future. We may also use significant amounts of cash and/or equity to
acquire complementary businesses, products, services or technologies.
The market for Internet infrastructure services has only recently begun
to develop, is evolving rapidly and likely will be characterized by an
increasing number of market entrants. There is significant uncertainty regarding
whether this market ultimately will prove to be viable or, if it becomes viable,
that it will grow. Our future growth, if any, will be dependent on the
willingness of carriers to peer and collocate within our facilities, enterprises
to outsource the system and network management of their mission-critical
Internet operations and our ability to market our services in a cost-effective
manner to a sufficiently large number of those potential customers. There can be
no assurance that the market for our services will develop, that our services
21
23
will be adopted or that businesses, organizations or consumers will use the
Internet for commerce and communication. If this market fails to develop, or
develops more slowly than expected, or if our services do not achieve market
acceptance, our business, results of operations and financial condition would be
materially and adversely affected.
We intend to allocate our financial resources to activities that are
consistent with our strategy of developing and operating TerreNAP(SM) Data
Centers, including the NAP of the Americas. We have therefore implemented a
policy of reducing expenditures in areas that are not consistent with that
objective. However, the development of the NAP of the Americas and other
TerreNAP(SM) Data Centers will require substantial capital resources. We are
exploring various alternatives, including the raising of debt and equity both in
private and public markets and obtaining financing from our vendors. In the
event that we are unsuccessful in obtaining sufficient financial resourses to
permit us to fully implement our proposed plans, we will consider various
alternatives, including possible joint ventures and reducing the scale or
deferring implementation of proposed projects. However, there is no assurance
that we will have the funds necessary to complete any TerreNAP(SM) Data Center.
The expansion of our operations through the opening of additional
TerreNAP(SM) Data Centers in emerging markets is our core strategy. To expand
successfully, we must be able to assess markets, locate and secure new
TerreNAP(SM) Data Center sites, install hardware, software and other equipment
in and develop TerreNAP(SM) Data Center facilities, and attract carriers,
Internet service providers and other customers to the new locations. To manage
this expansion effectively, we must continue to improve our operational and
financial systems and expand, train and manage our employee base and build a
menu of managed services. We anticipate continuing to make significant
investments in the NAP of the Americas and new TerreNAP(SM) Data Centers and
network infrastructure, product development, sales and marketing programs and
personnel. Our inability to establish additional TerreNAP(SM) Data Centers or
effectively manage our expansion would have a material adverse effect upon our
business. Furthermore, if we were to become unable to leverage third-party
products in our services offerings, our product development costs could increase
significantly. Finally, several of our customers are emerging growth companies
that may have negative cash flows, and there is the possibility that we will not
be able to collect receivables on a timely basis.
The deployment of our TerreNAP(SM) Data Center strategy will require us
to expend substantial resources for leases and/or purchase of real estate,
significant improvements of facilities, purchase of complementary businesses,
assets and equipment, implementation of multiple telecommunications connections
and hiring of network, administrative, customer support and sales and marketing
personnel. In general, we expect that it may take us a significant period of
time to select the appropriate location for a new TerreNAP(SM) Data Center,
construct the necessary facilities, install equipment and telecommunications
infrastructure and hire operations and sales personnel. The failure to generate
sufficient cash flows or to raise sufficient funds may require us to delay or
abandon some or all of our development and expansion plans or otherwise forego
market opportunities, making it difficult for us to generate additional revenue
and to respond to competitive pressures.
Expenditures commence well before a TerreNAP(SM) Data Center opens, and
it may take an extended period for us to approach break-even capacity
utilization. As a result, we expect that individual TerreNAP(SM) Data Centers
may experience losses for a period of time from the commencement of their
operations. If we do not attract customers to new TerreNAP(SM) Data Centers in a
timely manner, or at all, our business would be materially adversely affected.
Growth in the number of our TerreNAP(SM) Data Centers is likely to increase the
amount and duration of losses.
We expect to make additional significant investments in sales and
marketing and the development of new services as part of our expansion strategy.
We will incur further expenses from sales personnel hired to test market our
services in markets where there is no TerreNAP(SM) Data Center. In addition, we
typically experience a lengthy sales cycle for our services, particularly given
the importance to customers of securing Internet connectivity for mission-
critical operations and the need to educate certain customers regarding
TerreNAP(SM) Data Centers, and benefits of colocation and Internet connectivity
services. The rate of growth in our customer base and the length of the sales
cycle for our services may cause significant adverse results to our business,
and our financial condition would be materially and adversely affected. Due to
the typically lengthy sales cycle for our services, our expenses may occur prior
to customer commitments for our services. There can be no assurance that the
increase in our sales and marketing efforts will result in increased sales of
our services.
22
24
Our success is substantially dependent on the continued growth of our
customer base and the retention of our customers. Our ability to attract new
customers will depend on a variety of factors, including the willingness of
carriers to peer at our facilities, the willingness of businesses to outsource
their mission-critical Internet operations, the reliability and
cost-effectiveness of our services and our ability to effectively market such
services. We intend to develop alternative distribution and lead generation
relationships with potential channel partners. Any failure by us to develop
these relationships could materially and adversely impact our ability to
generate increased revenues, which would have a material adverse effect on our
business, results of operations and financial condition.
We depend on a limited number of third party suppliers for key
components of our infrastructure, and the loss of one or more suppliers may slow
our growth or cause us to lose customers. For example, the flywheel electrical
generators that we use for power backup at the NAP of the Americas and the
routers used as part of our peering infrastructure, that, are available only
from sole or limited sources in the quantities and quality demanded by us. We
purchase these components and technology assistance pursuant to short term
agreements with our infrastructure contractors. We do not carry inventories of
components and we have no guaranteed supply or service arrangements with any of
these vendors. Any failure to obtain required products or services on a timely
basis, at an acceptable cost would impede the growth of our business, causing
our financial condition to be materially and adversely affected. In addition,
any failure of our suppliers to provide products or components that comply with
evolving Internet standards, would materially and adversely affect our business,
results of operations and financial condition.
We will need to accomplish a number of objectives in order to
successfully complete the development of the permanent NAP of the Americas
facility, on a timely basis or at all, including obtaining necessary permits and
approvals, passing required inspections, and hiring necessary contractors,
builders, electricians, architects and designers. The successful development of
the facility will require careful management of various risks associated with
significant construction projects, including construction delay, cost estimation
errors or overruns, equipment and material delays or shortages, inability to
obtain necessary permits on a timely basis and other factors, many of which are
beyond our control. Our inability to establish the planned NAP of the Americas
facility or to effectively manage its expansion would have a material adverse
effect upon our business, results of operations and financial condition.
Furthermore, the interim NAP of the Americas facility and, if completed, the
permanent NAP of the Americas facility will result in substantial expenses. If
revenue levels do not increase sufficiently to offset these new expenses, our
operating results will be materially adversely impacted in future periods.
We conduct business internationally. Accordingly, our future operating
results could be materially adversely affected by a variety of factors, some of
which are beyond our control, including currency exchange fluctuation, longer
accounts receivable payment cycles and difficulty in collections, and in
managing operations, taxes, restrictions on repatriation of earnings,
regulatory, political or economic conditions in a specific country or region,
trade protection measures and other regulatory requirements.
We need to obtain additional licenses and approvals in order to
expand our services and enter new markets. Proposed or actual regulations with
respect to the Internet could also adversely impact our business. In addition,
in order to be successful in emerging markets, we must be able to differentiate
ourselves from our competition through our service offerings. There is no
assurance that we will successfully differentiate ourselves or that the market
will accept our services, or that we will not experience difficulties that could
delay or prevent the successful development, introduction or marketing of these
services. If we incur increased costs or are unable, for technical or other
reasons, to develop and introduce new services or enhance existing services in a
timely manner, or our products or services do not achieve market acceptance in a
timely manner or at all, our business, results of operations and financial
condition could be materially adversely affected.
Economic, interest rates and other conditions greatly impact our
business. 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.
23
25
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1999
REVENUE. Total revenue grew $11.3 million, or 298%, from $3.8 million
for the three months ended December 31, 1999 to $15.1 million for the three
months ended December 31, 2000. Telecom service revenue was $0.6 million during
the 2000 period. No telecom service revenue was recorded in the three months
ended December 31, 1999. The increase in telecommunications revenue is
attributable to the growth of our telecommunications business as a result of our
acquisition of Spectrum Communications and IXS.NET. Revenue from real estate
sales decreased $1.3 million, or 57%, from $2.3 million for the three months
ended December 31, 1999 to $1 million for the three months ended December 31,
2000. Revenue for the three months ended December 31, 1999 is attributable to
the sale of eight condominium units. As a result of fewer units being available
for sale, only four units were sold during the comparable period in 2000.
Commission income earned from lease signings increased to $2.8 million from $.4
million for the three months ended December 31, 1999, due primarily to
commissions earned from our telecom facilities management operations. Since we
anticipate selling the related operations in February 2001, leasing commissions
are expected to decrease in future periods. Management fees charged with respect
to the management of commercial and residential property increased $0.3 million,
from $0.4 million for the three months December 31, 1999 to $0.7 million for the
three months ended December 31, 2000 as a result of the acquisition of various
telecom and office building management contracts. Construction contract revenue
increased $8.3 million from $0.4 million for the three months ended December 31,
1999 to $8.7 million for the three months ended December 31, 2000. The increase
is attributable to the increase in the number of third party construction
projects obtained as a result of our acquisition of Post Shell Technology
Contractors. During 2000, we obtained 19 third party construction projects as a
result of our acquisition of Post Shell Technology Contractors. We do not
currently anticipate any losses on any of the individual contracts.
COST OF TELECOM SERVICES. Cost of telecom services was $1.4 million
for the three months ended December 31, 2000. No costs were recorded for the
comparable period during 1999.
START-UP COSTS TELECOM SERVICES. Start-up costs of telecom services
were $1.6 million for the three months ended December 31, 2000. No cost was
recorded for the comparable period during 1999. The increase was attributable to
costs associated with the design of the interim NAP.
COST OF REAL ESTATE SOLD. Cost of real estate sold decreased by $1
million, or 58.8%, from $1.7 million for the three months ended December 31,
1999 to $0.7 million for the three months ended December 31, 2000. The decrease
is attributable to the decrease in condominium units sold as a result of fewer
units being available for sale.
CONSTRUCTION CONTRACT EXPENSES. Construction contract expenses were
$7.6 million for the three months ended December 31,2000 compared to $0.3
million for the three months ended December 31, 1999. The increase in the 2000
period was attributable to the increase in the number of construction contracts
in progress and the percentage of completion of those projects.
GENERAL AND ADMINISTRATIVE EXPENSES. During fiscal 2000, our focus has
been on the integration of our acquisitions and establishing internal operations
to support Internet and telecom infrastructure services. General and
administrative expenses increased by $6.4 million, from $2.6 for the three
months ended December 31, 1999 to $9.0 million for the three months ended
December 31, 2000. This increase is attributable to the additional operating
expenses resulting from the acquisitions of Telecom Routing Exchange Developers,
Post Shell Technology Contractors, Spectrum Communications, Asia Connect and
IXS.NET. Although we are currently attempting to reduce expenses in activities
not directly related to our core strategy, we expect general and administrative
expenses relating to the development of the TerreNAP(SM) Data Centers to
increase over time as we continue to expand our operations.
24
26
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased from $23,000 for the three months ended December 31, 1999 to
$4.5 million for the three months ended December 31, 2000. The increase resulted
primarily from amortization of intangible assets associated with the April 28,
2000 merger of AmTec and Terremark, and the acquisitions of Telecom Routing
Exchange Developers, Post Shell Technology Contractors, Spectrum Communications,
Asia Connect and IXS.NET.
INTEREST INCOME. Interest income increased from $86,000 for the three
months ended December 31, 1999 to $0.1 million for the three months ended
December 31, 2000, due to an increase in cash balances.
DIVIDENDS. Dividends on redeemable preferred stock were $0.1 million
for the three months ended December 31, 1999. No dividends were paid in the 2000
period. The preferred stock was converted to shares of our common stock on April
28, 2000.
IMPAIRMENT OF INTANGIBLE ASSETS. As a result of our agreement to sell
certain telecom facilities management operations, we recognized a $4,155,178
impairment of intangible assets relating to management contracts to be sold.
NET LOSS. Overall net loss increased from $(1.9) million for the three
months ended December 31, 1999 to $(15.0) million for the three months ended
December 31, 2000. The increase was primarily due to the decrease in net
revenues from the sale of condominiums, start-up costs for the interim NAP,
amortization of identifiable intangibles and goodwill and the additional
operating expenses related to AmTec, Telecom Routing Exchange Developers,
Terremark Technology Contractors, Asia Connect, Spectrum Communications and
IXS.NET, subsequent to their acquisition.
NINE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1999
REVENUE. Total revenue grew $12.0 million, or 90%, to $25.4 million for
the nine months ended December 31, 2000 from $13.4 million for the nine months
ended December 31, 1999. Telecom service revenue was $1.1 million for the nine
months ended December 31, 2000. No telecom service revenue was recorded for the
comparable period during 1999. The increase was attributable to our telecom and
managed services offered in Latin America and Asia due to our acquisions of 80%
of Spectrum Communications and 100% of IXS.NET. Revenue from real estate sales
decreased $7.6 million, or 74%, from $10.4 million for the nine months ended
December 31, 1999 to $2.8 million for the nine months ended December 31, 2000.
Revenue for the nine months ended December 31, 1999 is attributable to the sale
of 45 condominium units. As a result of fewer units being available for sale,
only twelve units were sold during the comparable period in 2000. Commission
income earned from lease signings at telecom facilities, commercial and
residential property increased $3.1 million, from $0.6 million for the nine
months ended December 31, 1999 to $3.7 million for the nine months ended
December 31, 2000, due primarily to commissions earned from our telecom
facilities management operations. Since we anticipate selling the related
operations in February 2001, leasing commissions are expected to decrease in
future periods. Management fees charged with respect to the management of
telecom facilities, commercial and residential property increased $0.6 million,
or 62%, from $1.0 million for the nine months ended December 31, 1999 to $1.6
million for the nine months ended December 31, 2000. The increase is a result of
the acquisition of various telecom and commercial building management contracts.
Contract construction revenue increased $13.7 million; from $0.4 million for the
nine months ended December 31, 1999 to $14.1 million for the nine months ended
December 31, 2000. During 2000, we obtained 19 third party contract construction
projects as a result of our acquisition of Post Shell Technology Contractors,
Inc., now known as Terremark Technology Contractors Inc.
COST OF TELECOM SERVICES. Cost of telecom services was $2.0 million for
the nine months ended December 31, 2000. No cost was recorded for the comparable
period during 1999. The increase was attributable to our telecom and managed
services offered in Latin America and Asia as a result of our acquisitions of
Spectrum Communications and IXS. NET.
25
27
START- UP COSTS - TELECOM SERVICES. Start-up costs of telecom services
were $1.6 million for the nine months ended December 31, 2000. No cost was
recorded for the comparable period during 1999. The increase was attributable to
costs associated with the design of the interim NAP Facility.
COST OF REAL ESTATE SOLD. Cost of real estate sold decreased by $6.6
million, or 75.7%, from $8.8 million for the nine months ended December 31, 1999
to $2.1 million for the nine months ended December 31, 2000. The decrease is
attributable to the decrease in the number of condominium units sold as a result
of fewer units being available for sale.
CONTRACT CONSTRUCTION EXPENSES. Contract construction expenses
increased $12.4 million from $0.3 million for the nine months ended December 31,
1999 to $12.7 million for the nine months ended December 31, 2000. This increase
is attributable to an increase in the number of construction contracts in
progress as a result of our acquisition of Post Shell Technology Contractors
during the period and the percentage of completion of those projects. We do not
currently anticipate any losses on any of the individual contracts.
GENERAL AND ADMINISTRATIVE EXPENSES. During fiscal 2001, our focus has
been on the integration of our acquisitions and establishing internal operations
to support our Internet and telecom infrastructure services strategy. General
and administrative expenses increased by $15.8 million from approximately $5.2
million for the nine months ended December 31, 1999 to $21.0 million for the
nine months ended December 31, 2000. This increase is directly attributable to
our investment in personnel and corporate infrastructure and the related
additional operating expenses resulting from the April 28, 2000 merger of AmTec
and Terremark and the subsequent acquisitions of Telecom Routing Exchange
Developers, Post Shell Technology Contractors, Spectrum Communications, Asia
Connect and IXS.NET. Although we are currently attempting to reduce expenses in
activities not directly related to our core strategy, we expect general and
administrative expenses relating to the development of the TerreNAP(SM) Data
Centers to increase over time as we continue to expand our operations.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased
$1.3 million or 75.1% for the nine months ended December 31, 2000. The increase
is principally due to the expenses that were incurred in connection with the
promotion of the sale of Fortune House condominium units during the six months
ending September 30, 2000. In November 2000, this project was placed for sale
and all retail sales and marketing efforts were terminated. For the first six
months of 2000, we were marketing two projects, while in 1999; we were marketing
only one condominium project.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased from $63,000 for the nine months ended December 31, 1999 to
$10.1 million for the nine months ended December 31, 2000. The increase resulted
primarily from amortization of intangible assets associated with the April 28,
2000 merger of AmTec and Terremark and the acquisitions of Telecom Routing
Exchange Developers, Post Shell Technology Contractors, Spectrum Communications,
Asia Connect and IXS.NET.
EQUITY IN LOSSES OF AFFILIATE. Equity in losses of affiliate was $0.4
million for the nine months ended December 31, 2000. No losses were recorded for
the comparable period in 1999. Equity in losses of affiliate is derived from our
equity investment in IP.com.
INTEREST EXPENSE. Interest expense decreased from $0.6 for the nine
months ended December 31, 1999 to $0.5 million for the nine months ended
December 31, 2000 due to a decrease in the average debt balance outstanding.
INTEREST INCOME. Interest income increased from $0.2 million for the
nine months ended December 31, 1999 to $.5 million for the nine months ended
December 31, 2000, due to an increase in our average cash balances invested.
DIVIDENDS ON PREFERRED STOCK. Dividends on our redeemable preferred
stock were $0.3 million for the nine months ended December 31, 1999 compared to
$35,000 for the nine months ended December 31, 2000. On April 28, 2000, the
preferred stock was converted to shares of our common stock.
26
28
IMPAIRMENT OF INTANGIBLE ASSETS. As a result of our agreement to sell
certain telecom facilities management operations, we recognized a $4,155,178
impairment of intangible assets relating to management contracts to be sold.
NET LOSS. Overall net loss increased from $3.5 million for the nine
months ended December 31, 1999 to $32.2 million for the nine months ended
December 31, 2000 as a result of the factors discussed above. During fiscal
2000, our focus has been on the integration of our acquisitions and establishing
internal operations to support our focus on Internet and telecom infrastructure
services.
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operations for the nine months ended December 31, 2000 was
$14.9 million compared to cash provided by operations of $3.5 million for the
nine months ended December 31, 1999, a decrease of $18.4 million. The decrease
in cash flows resulted primarily from the net loss.
Cash provided by investing for the nine months ended December 31, 2000
was $47.4 million compared to cash used in investing activities of $1.4 million
for the nine months ended December 31, 2000, an increase in cash of $48.8
million. Cash from investing activities increased primarily due to the sale of
Terremark Centre accounted for as real estate held for sale. Cash was used in
investing activities as follows:
o In April 2000, we invested $3.5 million for a 27.3% ownership
interest in Boca Technology Center, LLC.
o In March 2000, we purchased, for $447,930, a 19.8% membership
interest in Cleveland Technology Center, LLC.
o In November 2000, we purchased, for $202,000, a 0.5% membership
interest in Technology Center of the Americas, LLC.
Cash used in financing activities for the nine months ended December
31, 1999 was $3.5 million compared to cash used in financing activities of $30.7
million for the nine months ended December 31, 2000, an increase of $27.2
million. The increase in cash used in financing activities resulted primarily
from payments on loans of approximately $76.2 million, which is offset by $28.1
million provided from the sale of our common stock and $13.8 of new borrowings.
Historically, we have met our capital requirements primarily through
debt financing and operating cash flow. Debt financing primarily includes the
following: (1) various vendor financing arrangements, with various terms,
secured by equipment totaling approximately $2.7 million at December 31, 2000;
(2) a line of credit secured by certain assets and personal guarantees of
certain Terremark executives with a balance of $2.3 million at December 31,
2000; (3) a $5.0 million line of credit secured by certain assets, with $3.5
million drawn on the line at December 31, 2000. Interest accrues at a floating
rate of Prime + 1% on drawn balances, payable monthly; (4) loan from a
commercial lender, secured by a first mortgage on real estate that has been
reduced from $2.7 million at March 31, 2000 to $0.4 million at December 31,
2000; and (5) a $7.5 million first mortgage from an individual secured by
certain real estate held for sale which matures on March 1, 2001 and accrues
interest at 12.0% per annum payable monthly.
On December 29, 2000, we issued $6,246,159 in principal amount of
subordinated convertible debt. Interest accrues at 13%, is payable quarterly
beginning March 31, 2001, and matures on December 31, 2005. Each debenture is
convertible into shares of our common stock at 120% of the 20-day average
trading price prior to its issuance. We are permitted to prepay the debentures,
which will entitle holders to warrants or a premium over their outstanding
principal based upon the following schedule:
27
29
YEAR REDEMPTION PRICE
---- ----------------
2001 105%
2002 104%
2003 103%
2004 102%
2005 100%
Subsequent to December 31, 2000, we sold an additional $1,767,700 of
convertible debt. Approximately 82.0% of the total amount sold is payable to our
management and directors.
On November 8, 2000, as a result of our efforts, the Technology Center
of the Americas, LLC obtained $48 million of equity and $61 million of
construction financing to complete TECOTA. We have guaranteed the bank loans in
the amount of $61 million and the timely completion of TECOTA's construction.
Set forth below is certain financial information of Technology Center of the
Americas, LLC as of December 31, 2000:
Construction in Progress $32,709,000
Accounts Payable and Accrued Expenses $12,589,000
Debt --
Members' Equity $48,404,000
We have entered into a contract to sell Fortune House II, a proposed
condominium/hotel project in Ft. Lauderdale Beach, Florida for $18.5 million.
The purchaser has the right to cancel the contract without liability until March
7, 2001. In the event the purchaser does not cancel the contract, we anticipate
closing on March 31, 2001.
We believe that our cash and cash equivalents, borrowing capacity and
access to other financing sources will be adequate to meet our anticipated
short-term liquidity requirements, including scheduled debt repayments and
capital expenditures.
In conjunction with our recent acquisitions, we have assumed operating
lease commitments, vendor financing agreements and other debt obligations. As
part of our business strategy, we intend to continue to evaluate potential
acquisitions, joint ventures and strategic alliances in companies that own
existing networks or companies that provide services that complement our
existing businesses. Such acquisitions may also require financing, which may not
be available to us on acceptable terms.
We intend to allocate our financial resources to activities which are
consistent with our strategy of developing and operating TerreNAP(SM) Data
Centers, including the NAP of the Americas. We have therefore implemented a
policy of reducing expenditures in areas which are not consistent with that
objective. However, the development of the NAP of the Americas and other
TerreNAP(SM) Data Centers will require substantial capital resources. We are
exploring various alternatives including the raising of debt and equity both in
private and public markets and obtaining financing from our vendors. In the
event that we are unsuccessful in obtaining sufficient financial resources to
permit us to fully implement our proposed plans, we will consider various
alternatives, including possible joint ventures and reducing the scale or
deferring the implementation of proposed projects.
28
30
INFLATION AND EXCHANGE RATES
The general rate of inflation in the United States has been
insignificant over the past several years and has not had a material impact on
our results of operations. As we expand international operations, inflation and
exchange rate variations may have substantial effects on our results of
operations and financial condition. Generally, the effects of inflation in many
Latin American countries, including Brazil, Peru and Chile and in Asia have been
offset in part by a devaluation of the local countries' currencies relative to
the U.S. dollar. Nevertheless, the devaluation of each country's currency may
have an adverse effect on us.
A substantial portion of our purchases of capital equipment and
interest on the related notes is payable in U.S. dollars. To date, we have not
had significant foreign currency exposure with third parties and generally
intend to pay them their services in U.S. dollars or in local currencies with a
pricing adjustment that is structured to protect us against the risk of
fluctuations in exchange rates. As a result, we have not entered into foreign
currency hedging transactions. In the future, if third party foreign currency
exposure increases, we may enter into hedging transactions in order to mitigate
any related financial exposure. However, a portion of sales to our customers
will be denominated in local currencies, and substantial or continued
devaluation in such currencies relative to the U.S. dollar could have a negative
effect on the ability of our customers to absorb the costs of devaluation. This
could result in our customers seeking to renegotiate their contracts with us or,
failing satisfactory renegotiation or defaulting on such contracts.
The carrying values of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses is a reasonable approximation of their
fair value.
We cannot predict whether interest rates will be at levels attractive
to prospective tenants, buyers or customers and any increase in interest rates
could affect our business adversely.
NEW ACCOUNTING PRONOUNCEMENTS
In September 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 (FASB 133), "Accounting for
Derivative Instruments and Hedging Activities," which becomes effective and is
required to be adopted in years beginning after September 15, 2000. FASB 133
requires all derivatives to be recorded in the balance sheet at fair value. FASB
133 establishes the accounting procedures for hedges that will affect the timing
of recognition and the manner in which hedging gains and losses are recognized
in Terremark's financial statements. Derivatives that are not hedges must be
adjusted to fair value through income. If derivatives are hedges, depending on
the nature of the hedge, changes in the fair value of derivatives will either be
offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or will be recognized in other comprehensive
income until the hedged item is recognized in earnings. We do not believe the
adoption of FASB 133 will have a material impact on our financial position and
results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin 101, or
SAB 101, Revenue Recognition, which outlines the basic criteria that must be met
to recognize revenue and provides guidance for presentation of revenue and for
disclosure related to revenue recognition policies in financial statements filed
with the SEC. The adoption of SAB 101 did not have a material impact on our
financial position and results of operations.
In March 2000, the FASB issued Interpretation No. 44, or FIN 44,
Accounting for Certain Transactions Involving Stock Compensation - an
Interpretation of APB 25. This Interpretation clarifies, the definition of
employee for purposes of applying Opinion 25, the criteria for determining
whether a plan qualifies as a non-compensatory plan, the accounting consequence
of various modifications to the terms of a previously fixed stock option or
award, and the accounting for an exchange of stock compensation awards in a
business combination. This Interpretation is effective July 1, 2000, but certain
conclusions in this Interpretation cover specific events that occur after either
December 15, 1998, or January 12, 2000. The adoption of certain of the
conclusions of FIN 44 covering events occurring during the period after December
15, 1998 or January 12, 2000 did not have a material effect on our financial
position and results of operations. We do not expect that the adoption of the
remaining conclusions will have a material effect on our financial position and
results of operations.
29
31
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On November 8, 2000, the Company issued warrants to purchase 250,000 shares of
the Company's common stock at an exercise price per share of $2.76. The warrants
expire November 7, 2008. The issuance of the warrants was exempt form the
registration requirements of the Securities Act of 1933,as amended (the "Act")
as the warrants were issued to accredited individuals pursuant to Regulation D
as promulgated under the act.
On December 29, 2000, the Company sold $6,246,159 in principal amount of 13%
Subordinated Convertible Debentures due December 31, 2005. Each debenture is
convertible (in multiples of $50,000) at a price per share equal to 120% of the
average market price of the Company's common stock for the twenty (20) trading
days preceding the date the debenture is purchased. The conversion price for the
debentures sold on December 29, 2000 was $1.5468. The debentures are convertible
at any time, but shares issued upon conversion may not be sold or transferred
prior to December 31, 2001. The Company may prepay the debentures at any time on
15 days' notice. Upon prepayment, the Holder may request repayment either: (i)
at a premium (5% in 2001 decreasing to 0% in 2005); or (ii) at par with warrants
to purchase shares of the Company's common stock in an amount equal to 10% of
the principal repaid exercisable at the conversion price. The holder may call
the debentures, with no premium or warrants, during the month of January 2003.
Conversion rights cease on notice of election to call.
The offer and sale of the debentures were exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Act") as the
debentures were sold to accredited investors pursuant to Regulation D and to
non-United States persons in offshore transactions pursuant to Regulation S each
as promulgated under the Act.
As of February 13, 2001, an additional $ 1,767,700 in principal amount of the
debentures had been sold.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
4.1 Form of 13% Subordinated Convertible Debenture,
due December 31, 2005.
4.2 Form of Warrant for the Purchase of Shares of
Common Stock.
(b) Reports on Form 8-K:
The Company filed a Form 8-K with respect to its private
placement of 13% subordinated convertible debentures on
December 1, 2000.
30
32
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: February 14, 2001 By: /s/ Manuel D. Medina
----------------------------------------
Manuel D. Medina, Chairman of the Board,
Chief Executive Officer (Principal
Executive Officer)
DATE: February 14, 2001 By:/s/ Irving A. Padron
----------------------------------------
Irving A. Padron, Chief Financial
Officer (Principal Financial Officer)
31