UNITED STATES
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended September 30, 2003 | ||
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from to | ||
Commission file number 0-22520
Terremark Worldwide, Inc
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Delaware
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52-1981922 | |
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(State or Other Jurisdiction of Incorporation or Organization) |
(IRS Employer Identification No.) |
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2601 S. Bayshore Drive, Miami, Florida
33133 (Address of Principal Executive Offices, Including Zip Code) |
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Registrant’s telephone number, including area code:
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 þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act. Yes þ No o.
The registrant had 310,534,689 shares of common stock, $0.001 par value, outstanding as of October 31, 2003.
TABLE OF CONTENTS
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| PART I FINANCIAL INFORMATION | ||||||
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Item 1
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Financial Statements | 1 | ||||
| Condensed Consolidated Balance Sheets as of September 30, 2003 (unaudited) and March 31, 2003 | 2 | |||||
| Condensed Consolidated Statements of Operations for the Three and Six Months ended September 30, 2003 and 2002 (unaudited) | 3 | |||||
| Condensed Consolidated Statement of Changes in Stockholder’s Deficit for the Six Months Ended September 30, 2003 (unaudited) | 4 | |||||
| Condensed Consolidated Statements of Cash Flows for the Six Months ended September 30, 2003 and 2002 (unaudited) | 5 | |||||
| Notes to Condensed Consolidated Financial Statements (unaudited) | 6 | |||||
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Item 2
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 | ||||
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Item 3
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Quantitative and Qualitative Disclosures About Market Risk | 35 | ||||
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Item 4
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Controls and Procedures | 35 | ||||
| PART II OTHER INFORMATION | ||||||
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Item 4
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Submission of Matters to a Vote of Security Holders | 37 | ||||
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Item 6
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Exhibits and Report on Form 8-K | 36 | ||||
| Signatures | 38 | |||||
i
| Item 1. | Financial Statements |
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
| September 30, | March 31, | |||||||||
| 2003 | 2003 | |||||||||
| (Unaudited) | ||||||||||
| ASSETS | ||||||||||
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Current assets:
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Cash and cash equivalents
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$ | 3,464,528 | $ | 1,408,190 | ||||||
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Accounts receivable, net of allowance for
doubtful accounts of $143,597 and $120,340
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865,258 | 494,736 | ||||||||
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Contracts receivable
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60,089 | 29,204 | ||||||||
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Other assets
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1,249,178 | — | ||||||||
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Total current assets
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5,639,053 | 1,932,130 | ||||||||
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Investment in unconsolidated entities, net
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824,343 | 827,667 | ||||||||
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Restricted cash
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777,965 | 768,905 | ||||||||
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Property and equipment, net
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53,059,062 | 54,482,964 | ||||||||
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Other assets
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1,101,606 | 1,589,977 | ||||||||
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Goodwill
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9,999,870 | 9,999,870 | ||||||||
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Total assets
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$ | 71,401,899 | $ | 69,601,513 | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||||
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Current liabilities:
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Current portion of notes payable (includes
$3,991,964 and $138,000 due to related parties)
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$ | 8,904,915 | $ | 1,464,963 | ||||||
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Construction payables
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496,874 | 22,012,162 | ||||||||
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Accounts payable and accrued expenses
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5,213,613 | 8,434,373 | ||||||||
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Current portion of capital lease obligations
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2,255,767 | 2,477,467 | ||||||||
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Interest payable
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1,334,635 | 4,492,805 | ||||||||
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Net liabilities of discontinued operations
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446,911 | 1,199,531 | ||||||||
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Convertible debt
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2,750,000 | 900,000 | ||||||||
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Total current liabilities
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21,402,715 | 40,981,301 | ||||||||
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Notes payable, less current portion (includes
$32,293,335 and $4,100,000 due to related parties)
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32,428,851 | 56,174,938 | ||||||||
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Convertible debt, with a face value of 38,880,000
and 14,005,000 includes $3,785,000 and $3,450,000 due to related
parties)
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29,796,667 | 14,005,000 | ||||||||
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Deferred rent
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4,510,664 | 2,610,623 | ||||||||
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Capital lease obligations, less current portion
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523,849 | 762,470 | ||||||||
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Deferred revenue
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1,187,359 | 971,150 | ||||||||
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Series H redeemable convertible preferred
stock: $.001 par value, 294 shares issued and outstanding
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571,723 | 556,729 | ||||||||
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Total liabilities
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90,421,828 | 116,062,211 | ||||||||
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Commitments and contingencies
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Series G convertible preferred stock: $.001
par value, 20 shares issued and outstanding
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1 | 1 | ||||||||
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Common stock: $.001 par value,
500,000,000 shares authorized; 310,186,720 and
256,276,864 shares issued
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310,186 | 256,277 | ||||||||
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Paid in capital
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203,986,853 | 169,204,208 | ||||||||
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Accumulated deficit
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(222,201,729 | ) | (214,324,140 | ) | ||||||
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Common stock warrants
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2,339,385 | 1,857,581 | ||||||||
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Common stock options
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1,545,375 | 1,545,375 | ||||||||
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Note receivable — related party
(Note 4)
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(5,000,000 | ) | (5,000,000 | ) | ||||||
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Total stockholders’ deficit
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(19,019,929 | ) | (46,460,698 | ) | ||||||
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Total liabilities and stockholders’ deficit
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$ | 71,401,899 | $ | 69,601,513 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
2
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
| For the Six Months Ended | For the Three Months Ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||||
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Revenues
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Data center — services
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$ | 6,459,128 | $ | 4,483,409 | $ | 3,448,513 | $ | 2,424,280 | ||||||||||
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Data center — contract termination fee
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291,537 | 1,090,638 | — | — | ||||||||||||||
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Data center — other
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492,160 | — | 492,160 | — | ||||||||||||||
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Development, commission and construction fees
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41,081 | 76,820 | — | 59,216 | ||||||||||||||
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Management fees
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107,070 | 117,576 | 42,800 | 35,031 | ||||||||||||||
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Construction contracts
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98,972 | 3,106,851 | 65,277 | 1,173,882 | ||||||||||||||
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Operating revenues
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7,489,948 | 8,875,294 | 4,048,750 | 3,692,409 | ||||||||||||||
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Expenses
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Data center operations, excluding depreciation
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6,029,778 | 5,863,424 | 3,473,230 | 2,768,744 | ||||||||||||||
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Data center — other
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476,707 | — | 476,707 | — | ||||||||||||||
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Construction contract expenses, excluding
depreciation
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108,655 | 2,771,314 | 62,199 | 937,805 | ||||||||||||||
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General and administrative
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7,469,418 | 6,478,545 | 4,823,636 | 3,192,623 | ||||||||||||||
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Sales and marketing
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1,533,310 | 1,979,002 | 760,992 | 1,209,396 | ||||||||||||||
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Depreciation and amortization
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2,351,683 | 2,565,221 | 1,167,654 | 1,333,977 | ||||||||||||||
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Impairment of long-lived assets
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— | 350,000 | — | 350,000 | ||||||||||||||
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Operating expenses
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17,969,551 | 20,007,506 | 10,764,418 | 9,792,545 | ||||||||||||||
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Loss from operations
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(10,479,603 | ) | (11,132,212 | ) | (6,715,668 | ) | (6,100,136 | ) | ||||||||||
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Other income (expense)
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Gain on debt restructuring
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8,475,000 | — | — | — | ||||||||||||||
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Interest expense
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(6,210,553 | ) | (6,273,682 | ) | (4,378,482 | ) | (3,258,055 | ) | ||||||||||
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Dividend on preferred stock
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(14,994 | ) | (14,994 | ) | (7,497 | ) | (7,497 | ) | ||||||||||
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Interest income
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55,729 | 52,351 | 32,474 | 23,486 | ||||||||||||||
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Other
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296,832 | (22,077 | ) | 261,768 | (75,993 | ) | ||||||||||||
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Total other income (expenses)
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2,602,014 | (6,258,402 | ) | (4,091,737 | ) | (3,318,059 | ) | |||||||||||
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Loss before income taxes
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(7,877,589 | ) | (17,390,614 | ) | (10,807,405 | ) | (9,418,195 | ) | ||||||||||
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Income taxes
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— | — | — | |||||||||||||||
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Net loss
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$ | (7,877,589 | ) | $ | (17,390,614 | ) | $ | (10,807,405 | ) | $ | (9,418,195 | ) | ||||||
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Basic and diluted net loss per common share:
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$ | (0.03 | ) | $ | (0.08 | ) | $ | (0.04 | ) | $ | (0.04 | ) | ||||||
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Weighted average common shares outstanding
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299,303,427 | 214,895,564 | 308,617,668 | 225,154,386 | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
| Stockholders’ Deficit (Unaudited) | ||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||
| Par Value $.001 | ||||||||||||||||||||||||||||||||
| Additional | Common | Common | ||||||||||||||||||||||||||||||
| Preferred | Issued | Paid-in | Stock | Stock | Note Receivable | Retained | ||||||||||||||||||||||||||
| Stock | Shares | Amount | Capital | Warrants | Options | Related Party | Deficit | |||||||||||||||||||||||||
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Balance at March 31, 2003
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1 | 256,276,864 | $ | 256,277 | $ | 169,204,208 | $ | 1,857,581 | $ | 1,545,375 | $ | (5,000,000 | ) | $ | (214,324,140 | ) | ||||||||||||||||
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Conversion of debt
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— | 50,193,339 | 50,193 | 23,494,810 | — | — | — | — | ||||||||||||||||||||||||
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Exercise of stock options
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— | 55,001 | 55 | 28,565 | — | — | — | — | ||||||||||||||||||||||||
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Warrants issued
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— | — | — | (177,750 | ) | 512,350 | — | — | — | |||||||||||||||||||||||
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Exercise of warrants
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— | 9,500 | 9 | 8,521 | (3,971 | ) | — | — | — | |||||||||||||||||||||||
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Warrants expired
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— | — | — | 26,575 | (26,575 | ) | — | — | — | |||||||||||||||||||||||
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Beneficial conversion feature on issuance of
convertible debentures
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— | — | — | 9,500,000 | — | — | — | — | ||||||||||||||||||||||||
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Stock options issued
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1,905,576 | |||||||||||||||||||||||||||||||
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Common stock issued
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3,652,016 | 3,652 | (3,652 | ) | ||||||||||||||||||||||||||||
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Net loss
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— | — | — | — | — | — | — | (7,877,589 | ) | |||||||||||||||||||||||
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Balance at September 30, 2003
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1 | 310,186,720 | $ | 310,186 | $ | 203,986,853 | $ | 2,339,385 | $ | 1,545,375 | $ | (5,000,000 | ) | $ | (222,201,729 | ) | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
| For the Six Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2003 | 2002 | |||||||||||
| (Unaudited) | ||||||||||||
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Cash flows from operating activities:
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Net loss
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$ | (7,877,589 | ) | $ | (17,390,614 | ) | ||||||
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Adjustments to reconcile net loss to net
cash used in operating activities
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Depreciation and amortization
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2,351,683 | 2,571,829 | ||||||||||
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Amortization of beneficial conversion feature on
issuance of convertible debentures
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