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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

     
þ
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
    For the quarterly period ended December 31, 2004
 
o
   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.

(Exact Name of Registrant as Specified in Its Charter)
     
Delaware
   84-0873124
(State or Other Jurisdiction of
Incorporation or Organization)		   (IRS Employer
Identification No.)

2601 S. Bayshore Drive, Miami, Florida 33133

(Address of Principal Executive Offices, Including Zip Code)

Registrant’s telephone number, including area code:

(305) 856-3200

      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 354,455,181 shares of common stock, $0.001 par value, outstanding as of January 31, 2005.

Table of Contents

             
Page
 PART I — FINANCIAL INFORMATION
   Financial Statements     2  
     Condensed Consolidated Balance Sheets as of December 31, 2004 (unaudited) and March 31, 2004     2  
     Condensed Consolidated Statements of Operations for the Three and Nine Months ended December 31, 2004 and 2003 (unaudited)     3  
     Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit) for the Nine Months ended December 31, 2004 (unaudited)     4  
     Condensed Consolidated Statements of Cash Flows for the Nine Months ended December 31, 2004 and 2003 (unaudited)     5  
     Notes to Condensed Consolidated Financial Statements (unaudited)     6  
   Management’s Discussion and Analysis of Financial Condition and Results of Operations     21  
   Quantitative and Qualitative Disclosures about Market Risk     41  
   Controls and Procedures     43  
 
 PART II — OTHER INFORMATION
   Unregistered Sales of Equity Securities and Use of Proceeds     44  
   Submission of Matters to a Vote of Security Holders     44  
   Exhibits     44  
 Sec 302 Chief Executive Officer Certification
 Sec 302 Chief Financial Officer Certification
 Sec 906 Chief Executive Officer Certification
 Sec 906 Chief Financial Officer Certification

1

Table of Contents

PART I.     FINANCIAL INFORMATION

 
Item 1. Financial Statements

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

                   
December 31, March 31,
2004 2004
(Unaudited)
ASSETS
Current assets:
               
Cash and cash equivalents
  $ 15,814,894     $ 4,378,614  
Restricted cash
    11,637,692       —  
Accounts receivable, net of allowance for doubtful accounts of $200,000 at December and March
    3,333,795       3,214,101  
Current portion of capital lease receivable
    1,577,760       —  
Note receivable
    —       2,285,000  
Contracts receivable
    40,014       363,043  
Prepaid and other current assets ($470,967 and $499,009 due from related parties)
    716,462       1,115,230  
Deferred costs under government contracts
    1,766,398       —  
     
     
 
 
Total current assets
    34,887,015       11,355,988  
Investment in unconsolidated entities, net
    —       725,319  
Restricted cash
    5,621,020       789,476  
Property and equipment, net
    121,800,043       53,897,716  
Debt issuance costs
    9,699,508       488,971  
Other assets
    1,959,105       175,363  
Capital lease receivable, net of current portion
    4,615,431       —  
Goodwill
    9,999,870       9,999,870  
     
     
 
 
Total assets
   $ 188,581,992     $ 77,432,703  
     
     
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
               
Note payable to a former owner of TECOTA
  $ 7,244,489     $ —  
Current portion of mortgage payable
    680,303       —  
Current portion of notes payable ($4,325,010 due to related parties at March 31)
    4,644,600       9,194,145  
Construction payables
    2,134,713       1,363,554  
Accounts payable and accrued expenses
    16,075,937       7,067,319  
Current portion of capital lease obligations
    1,051,239       1,799,726  
Interest payable
    512,328       1,952,978  
Current portion of unearned interest
    533,135       —  
Convertible debt
    —       250,000  
     
     
 
 
Total current liabilities
    32,876,744       21,627,722  
Mortgage payable
    46,119,108       —  
Convertible debt
    53,017,846       36,895,239  
Derivatives embedded within convertible debt, at estimated fair value
    21,139,875       —  
Notes payable, less current portion (includes $31,191,967 due to related parties at March 31)
    23,417,655       31,311,894  
Deferred rent
    1,751,194       6,938,454  
Unearned interest under capital lease receivables
    781,859       —  
Capital lease obligations, less current portion
    137,360       105,886  
Deferred revenue
    2,640,424       2,686,396  
Series H redeemable convertible preferred stock: $.001 par value, 294 shares issued and outstanding, at liquidation value
    609,208       586,718  
     
     
 
 
Total liabilities
     182,491,273       100,152,309  
     
     
 
Minority interest
    76,614       —  
     
     
 
Commitments and contingencies
    —       —  
     
     
 
Stockholders’ equity (deficit):
               
Series G convertible preferred stock: $.001 par value, 20 shares issued and outstanding (liquidation value of approximately $2.9 million)
    1       1  
Series I convertible preferred stock: $.001 par value, 390 shares issued and outstanding (liquidation value of approximately $10.3 million and $10.0 million)
    1       1  
Common stock: $.001 par value, 600,000,000 shares authorized; 363,107,197 and 311,227,482 shares issued
    363,107       311,227  
Common stock warrants
    13,715,949       3,642,006  
Common stock options
    1,545,375       1,545,375  
Additional paid-in capital
    238,020,476       213,596,501  
Accumulated deficit
    (239,865,271 )     (236,814,717 )
Accumulated other comprehensive loss
    (544,896 )     —  
Treasury stock: 8,652,016 shares
    (7,220,637 )     —  
Note receivable — related party
    —       (5,000,000 )
     
     
 
 
Total stockholders’ equity (deficit)
     6,014,105       (22,719,606 )
     
     
 
 
Total liabilities and stockholders’ equity (deficit)
   $ 188,581,992     $ 77,432,703  
     
     
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                       
For the Nine Months Ended For the Three Months Ended
December 31, December 31,
2004 2003 2004 2003
(Unaudited) (Unaudited)
Revenues
                               
 
Data center — services
  $ 23,951,730     $ 11,834,820     $ 8,925,815     $ 4,591,996  
 
Data center — technology infrastructure build-out
    9,393,896       —       9,393,896       —  
 
Development, commission and construction fees
    —       41,081       —       —  
 
Management fees
    144,827       150,800       53,905       43,730  
 
Construction contracts
    1,184,700       328,336       187,914       229,364  
     
     
     
     
 
   
Operating revenues
    34,675,153       12,355,037       18,561,530       4,865,090  
     
     
     
     
 
Expenses
                               
 
Data center operations — services, excluding depreciation (includes $5,818,784 and $3,072,161 (nine months) and $1,939,595 and $1,293,063 (three months) in rent expense with a related party
    20,176,588       11,170,512       7,975,918       4,664,026  
 
Data center operations — technology infrastructure build-out
    7,406,149       —       7,406,149       —  
 
Construction contract expenses, excluding depreciation
    1,128,751       337,613       179,938       228,957  
 
General and administrative
    10,451,253       10,325,328       3,471,807       2,855,910  
 
Sales and marketing
    3,403,263       2,348,849       1,370,144       815,539  
 
Depreciation and amortization
    3,900,392       3,570,569       1,327,338       1,218,886  
     
     
     
     
 
   
Operating expenses
    46,466,396       27,752,871       21,731,294       9,783,318  
     
     
     
     
 
     
Loss from operations
    (11,791,243 )     (15,397,834 )     (3,169,764 )     (4,918,228 )
     
     
     
     
 
Other income (expenses)
                               
 
Change in estimated fair value of derivatives embedded within convertible debt
    14,343,375       —       664,125       —  
 
Gain on debt restructuring and extinguishment, net
    3,420,956       8,475,000       —       —  
 
Interest expense (includes $670,649 and $1,475,218 (nine months) and $13,113 and $593,268 (three months) with a related party)
    (9,387,826 )     (10,498,899 )     (2,954,678 )     (4,273,353 )
 
Interest income
    331,387       100,615       135,144       44,886  
 
Other, net
    32,797       291,789       37,056       (5,043 )
     
     
     
     
 
   
Total other income (expenses)
    8,740,689       (1,631,495 )     (2,118,353 )     (4,233,510 )
     
     
     
     
 
 
Loss before income taxes
    (3,050,554 )     (17,029,329 )     (5,288,117 )     (9,151,738 )
Income taxes
    —       —       —       —  
     
     
     
     
 
Net loss
    (3,050,554 )     (17,029,329 )     (5,288,117 )     (9,151,738 )
Preferred dividend
    (721,821 )     (120,000 )     (235,000 )     (40,000 )
     
     
     
     
 
Net loss attributable to common shareholders
  $ (3,772,375 )   $ (17,149,329 )   $ (5,523,117 )   $ (9,191,738 )
     
     
     
     
 
Basic and diluted net loss per common share
  $ (0.01 )   $ (0.06 )   $ (0.02 )   $ (0.03 )
     
     
     
     
 
Weighted average common shares outstanding
    341,172,347       303,030,798       351,351,808       308,875,973  
     
     
     
     
 

The accompanying notes are an integral part of these condensed consolidated financial statements

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Table of Contents

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES

IN STOCKHOLDERS’ EQUITY (DEFICIT)
                                                                         
Stockholders’ Equity (Deficit) (Unaudited)
Common Stock
Par Value
$.001 Accumu- Note
Common Common Additional Accumu- lated Other Receivable
Issued Stock Stock Paid-In lated Compre- Treasury Related
Shares Amount Warrants Options Capital Deficit hensive Loss Stock Party
Balance at March 31, 2004
    311,227,482     $ 311,227     $ 3,642,006     $ 1,545,375     $ 213,596,501     $ (236,814,717 )   $ —     $ —     $ (5,000,000 )
Issuance of shares
    3,060,444       3,060       —       —       1,996,940       —       —       —       —  
Conversion of debt
    55,249,274       55,249       —       —       27,980,775       —       —       —       —  
Conversion of preferred stock
    333,340       333       —       —       (333 )     —       —       —       —  
Exercise of stock options
    336,667       337       —       —       122,423       —       —       —       —  
Warrants issued
    —       —       10,335,583       —       —       —       —       —       —  
Exercise of warrants
    351,622       352       (261,640 )     —       263,288       —       —       —       —  
Preferred stock issuance costs
    —       —       —       —       (587,860 )     —       —       —       —  
Accrued dividends on preferred stock