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 September 30, 2002
[   ]	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	52-1981922
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. 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 [X]       No [   ]

     The registrant had 232,631,074 shares of common stock, $0.001 par value, outstanding as of November 11, 2002.

TABLE OF CONTENTS

		Page No.
PART I.	FINANCIAL INFORMATION		1
ITEM 1.	Financial Statements		1
	Condensed Consolidated Balance Sheets as of September 30, 2002 (unaudited) and March 31, 2002		1
	Condensed Consolidated Statements of Operations for the Three and Six Months ended September 30, 2002 and 2001 (unaudited)		2
	Condensed Consolidated Statement of Changes in Stockholder’s Deficit for the Six Months Ended September 30, 2002 (unaudited)		3
	Condensed Consolidated Statements of Cash Flows for the Six Months ended September 30, 2002 and 2001 (unaudited)		4
	Notes to Condensed Consolidated Financial Statements (unaudited)		5
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		37
ITEM 4.	Controls and Procedures		38
PART II.	OTHER INFORMATION		39
ITEM 1.	Legal Proceedings		39
ITEM 3.	Defaults Upon Senior Securities		39
ITEM 6.	Exhibits and Reports on Form 8-K		39
SIGNATURES			40
CERTIFICATIONS			41

i

Terremark Worldwide, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets

			September 30,			March 31,
			2002			2002
			(unaudited)
		ASSETS
Current assets:
Cash and cash equivalents			$	848,594		$	283,078
Restricted cash				768,905			757,573
Accounts receivable, net of allowance for doubtful accounts of $249,687 and $234,767 respectively				1,443,889			1,621,978
Contracts receivable				382,206			1,362,836
	Total current assets			3,443,594			4,025,465
Investment in unconsolidated entities				688,296			489,855
Property and equipment, net				58,423,997			61,088,987
Other assets				2,036,624			2,199,454
Identifiable intangible assets and goodwill				13,220,170			13,220,170
	Total Assets		$	77,812,681		$	81,023,931
		Liabilities and Stockholders’ Deficit
Current liabilities:
Current portion of notes payable (includes $4,600,000 and $4,250,000 due to related parties)			$	50,578,180		$	50,752,209
Construction payables — property and equipment				21,715,884			26,250,729
Trade payables and other liabilities				11,071,339			10,240,698
Current portion of capital lease obligations				1,972,052			2,079,294
Interest payable				2,450,740			2,347,742
Net liabilities of discontinued operations				1,246,731			1,394,010
Convertible debt (includes $4,450,000 due to related parties)				30,655,000			0
	Total current liabilities			119,689,926			93,064,682
Convertible debt (includes $4,450,000 due to related parties)				0			30,655,000
Notes payable, less current portion (includes $-0- and $2,950,000 due to related parties)				164,567			3,128,091
Capital lease obligations, less current portion				1,729,052			2,136,076
Deferred revenue				1,006,005			815,826
	Total Liabilities			122,589,550			129,799,675
Series H redeemable convertible preferred stock: $.001 par value, 294 shares authorized, issued and outstanding, respectively				500,000			500,000
Series G convertible preferred stock: $.001 par value, 20 shares authorized, issued and outstanding				1			1
Common stock: $.001 par value, 300,000,000 shares authorized; 232,631,074 and 200,882,250 shares issued, of which -0- and 1,400,000 shares are held in treasury, respectively				232,631			200,882
Paid in capital				144,620,555			125,652,119
Retained deficit				(190,487,449	)		(173,096,835	)
Common stock subscriptions				—			950,000
Common stock warrants				3,790,592			2,879,413
Common stock options				1,566,801			1,566,801
Less cost of shares of common stock in treasury				—			(2,428,125	)
Note receivable — related party (Note 9)				(5,000,000	)		(5,000,000	)
Commitments and contingencies
	Total Stockholders’ Deficit			(45,276,869	)		(49,275,744	)
	Total Liabilities and Stockholders’ Deficit		$	77,812,681		$	81,023,931

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

1

Terremark Worldwide, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations

			For the six months						For the three months
			ended September 30,						ended September 30,
			2002			2001			2002			2001
			(unaudited)						(unaudited)
Revenues
	Data center		$	4,483,409		$	621,453		$	2,424,280		$	393,508
	Data center — contract termination fee			1,090,638			—			—			—
	Development, commission and construction fees			76,820			1,934,917			59,216			1,144,696
	Management fees			117,576			818,202			35,031			405,658
	Construction contracts			3,106,851			6,175,679			1,173,882			2,452,678
		Operating revenues		8,875,294			9,550,251			3,692,409			4,396,540
Expenses
	Data center operations			5,863,424			4,049,144			2,768,744			3,167,068
	Start-up costs — data centers			—			3,383,127			—			—
	Construction contract expenses			2,771,314			4,711,854			937,805			1,915,247
	General and administrative			6,478,545			8,901,385			3,192,623			4,753,031
	Sales and marketing			1,979,002			1,878,287			1,209,396			1,398,464
	Depreciation and amortization			2,565,221			2,617,024			1,333,977			2,048,748
	Impairment of long-lived assets			350,000			6,462,315			350,000			6,462,315
		Operating expenses		20,007,506			32,003,136			9,792,545			19,744,873
	Loss from operations			(11,132,212	)		(22,452,885	)		(6,100,136	)		(15,348,333	)
Other (expense) income
	Interest income			52,351			79,769			23,486			32,911
	Interest expense			(6,273,682	)		(3,318,755	)		(3,258,055	)		(2,264,556	)
	Other (expense) income			(22,077	)		400,209			(75,993	)		368,188
	Dividend on preferred stock			(14,994	)		(11,747	)		(7,497	)		(7,497	)
	Gain on real estate held for sale			—			3,988,633			—			3,882,020
		Total other (expense) income		(6,258,402	)		1,138,109			(3,318,059	)		2,011,066
	Loss before income taxes			(17,390,614	)		(21,314,776	)		(9,418,195	)		(13,337,267	)
Income taxes				—			—			—			—
	Net loss		$	(17,390,614	)	$	(21,314,776	)	$	(9,418,195	)	$	(13,337,267	)
Basic and diluted loss per common share:
	Net loss		$	(0.08	)	$	(0.11	)	$	(0.04	)	$	(0.07	)
Weighted average common shares outstanding				214,895,564			200,622,179			225,154,386			200,622,179

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

2

Terremark Worldwide, Inc. and Subsidiaries
Condensed Consolidated Statement of Changes in Stockholders’ Deficit

	Stockholders' Deficit
			Common Stock
			Par Value $.001																			Note
									Additional			Common			Common		Common					Receivable-
	Preferred		Issued						Paid-in			Stock			Stock		Stock		Treasury			Related			Retained
	Stock		Shares			Amount			Capital			Subscriptions			Warrants		Options		Stock			Party			Deficit
Balance at March 31, 2002	$	1		200,882,250		$	200,882		$	125,652,119		$	950,000		$	2,879,413	$	1,566,801	$	(2,428,125	)	$	(5,000,000	)	$	(173,096,835	)
Sale of common stock		—		33,148,824			33,149			21,395,161			(950,000	)		—		—		—			—			-
Retirement of treasury shares		—		(1,400,000	)		(1,400	)		(2,426,725	)		—			—		—		2,428,125			—			-
Warrants issued		—		—			—			—			—			911,179		—		—			—			-
Net loss		—		—			—			—			—			—		—		—			—			(17,390,614	)
Balance at September 30, 2002 (unaudited)	$	1		232,631,074		$	232,631		$	144,620,555		$	—		$	3,790,592	$	1,566,801	$	—		$	(5,000,000	)	$	(190,487,449	)

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

3

Terremark Worldwide, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows

					For the six months ended
					September 30,
					2002			2001
					(unaudited)
Cash flows from operating activities:
	Net loss				$	(17,390,614	)	$	(21,314,776	)
	Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization of capital leases					2,571,829			1,137,889
		Amortization of intangible assets and goodwill				—			1,479,135
		Amortization of loan costs to interest expense				468,931			645,425
		Amortization of prepaid compensation and other				93,168			70,401
		Bad debt				8,907
		Gain on sale of real estate held for sale				—			(3,988,633	)
		Loss on sale of property and equipment				—			252,317
		Impairment of long-lived assets				350,000			6,462,315
		(Increase) decrease in:
			Restricted cash			(11,332	)		(717,961	)
			Accounts receivable			169,182			355,425
			Contracts receivable			980,630			3,023,824
			Other assets			(64,401	)		(647,668	)
		Increase (decrease) in:
			Trade payable and other liabilities			480,641			(6,133,417	)
			Interest payable			341,998			1,116,971
			Deferred revenue			190,179			(49,119	)
			Net assets/liabilities of discontinued operations			222,721			(1,413,281	)
				Net cash used in operating activities		(11,588,161	)		(19,721,153	)
Cash flows from investing activities:
	Purchase of property and equipment					(810,995	)		(40,805,952	)
	Investment in unconsolidated entities, net					(198,441	)		—
	Proceeds from sale of real estate held for sale					—			16,470,281
	Proceeds from sale of property and equipment					—			30,000
	Note receivable-related party					—			(5,000,000	)
				Net cash used in investing activities		(1,009,436	)		(29,305,671	)
Cash flows from financing activities:
	Construction payables — property and equipment					(3,630,689	)		7,307,810
	New borrowings					2,281,220			57,449,704
	Payments on loans					(1,921,941	)		(26,288,112	)
	Convertible debt					—			10,773,951
	Capital lease obligations					(514,266	)		(644,501	)
	Exercise of stock options and warrants					1,000			40,250
	Sale of common stock and warrants					16,947,789			—
	Sale of preferred stock					—			500,000
				Net cash provided by financing activities		13,163,113			49,139,102
				Net increase in cash		565,516			112,278
Cash and cash equivalents at beginning of period						283,078			5,574,687
Cash and cash equivalents at end of period					$	848,594		$	5,686,965
	Supplemental Disclosure:
	Interest paid (net of amount capitalized)				$	5,668,586		$	2,282,103
	Taxes paid								—
	Non-cash portion of assets acquired under capital leases					—			4,293,762

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

4

Terremark Worldwide, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)

Supplemental Disclosure:

During the six months ended September 30, 2002, the Company in addition to cash payment, issued 800,000 warrants valued at $301,700 to third parties.

During the six months ended September 30, 2002, $3,350,000 in notes payable, $370,000 in liabilities of discontinued operations and $239,000 in accrued interest were converted to equity and reclassified to common stock and paid in capital.

During the six months ended September 30, 2002, the Company reclassified $950,000 in common stock subscriptions to common stock and paid in capital.

During the six months ended September 30, 2002, the Company retired $2,428,125 in treasury shares.

During the six months ended September 30, 2002, the Company reduced leasehold improvements and construction payables by $904,156 as a result of final agreement reached with a vendor.

During the six months ended September 30, 2002, $180,000 in common stock was issued primarily for satisfaction of a note payable.

During the six months ended September 30, 2002, 100,000 warrants valued at $60,000 were issued and subsequently converted to 100,000 shares of common stock for $61,000 through the conversion plus receipt of $1,000 in cash.

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

5

Terremark Worldwide, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2002

1.     Business and Organization

     Terremark Worldwide, Inc. (together with its subsidiaries, the “Company”) is a multinational corporation that provides Internet infrastructure and managed services. It is the owner and operator of the NAP of the Americas, the fifth Tier-1 Network Access Point (“NAP”) in the world. The NAP of the Americas located in Miami, Florida, was fully placed in service on July 1, 2001. The Company’s strategy is to leverage its experience as the owner and operator of the NAP of the Americas by developing and operating TerreNAP^SM Data Centers in Latin America and Europe. TerreNAP^SM Data Centers provide exchange point, collocation and managed services to carriers, Internet service providers, other Internet companies and enterprises.

2.     Liquidity

     The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Through September 30, 2003, $89.1 million of the Company’s liabilities, including notes, construction and other trade payables are or will come due. Additionally $30.7 million of Convertible Subordinated Debentures have been classified as a current liability. The Company had a net working capital deficit of approximately $116.2 million and stockholder’s deficit of approximately $45.3 million at September 30, 2002 and incurred a net loss of approximately $17.4 million for the six months then ended.

     Management expects the Company will need an infusion of cash to fund business operations during this fiscal year ending March 31, 2003. The Company’s liquidity needs are primarily related to repayment of construction payables and debt and to support operations. The Company has developed a plan to continue operating through the year ended March 31, 2003. Actual funding requirements are dependent upon management’s ability to meet its expectations and will be significantly impacted if some or all of the following assumptions, which underly the expectations are not met:

• restructuring of approximately $21.6 million of construction payables into long term payables or equity or a combination thereof;

• signing and installation of additional customer contracts at NAP of the Americas; and

• no funding under any of the Company’s guarantees.

     On November 8, 2002, CRG, LLC entered into an agreement with Cupertino Electric, Inc. to purchase $18.5 million of the Company’s debt and all associated rights held by Cupertino. This amount represents the entire construction payable that the Company owes to Cupertino. On November 11, 2002, the Company entered into an agreement with CRG that provides the Company the option, upon the closing of the purchase of the debt by CRG from Cupertino, to repay the entire debt at a discount by either issuing shares of the Company’s common stock valued at $0.75 per share or making a cash payment. The Company’s option must be exercised simultaneously with the closing of CRG’s purchase of the debt from Cupertino. If the purchase by CRG of the debt from Cupertino closes on or before November 22, 2002, the Company may choose to pay $9.5 million in cash or issue 24,666,667 shares. If the purchase by CRG of the debt from Cupertino closes after November 22, 2002 and on or before December 15, 2002, the Company may choose to pay $11.0 million in cash or issue 24,666,667 shares.

6

Terremark Worldwide, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2002

     The Company’s debt to Cupertino is in default as it matured on October 31, 2002 and it has not yet been repaid. As part of the agreement between CRG and Cupertino, Cupertino has agreed not to enforce any of its rights against the Company, but in order to preserve its rights, on November 8, 2002 Cupertino filed an action to enforce the rights it had acquired by virtue of a construction lien. Nevertheless, the standstill will be in effect until the closing of the purchase of the debt by CRG and upon the closing of the purchase of the Company’s debt to Cupertino by CRG the action filed by Cupertino will be dismissed and the default under the debt cured. If the purchase of the debt by CRG does not occur on or before December 15, 2002 the standstill and the agreement between CRG and Cupertino will expire, and the Company will continue to owe the $18.5 million to Cupertino.

     On November 1, 2002 and November 5, 2002, approximately $2.8 million and $1.0 million of the Company’s debt owed to Kinetics came due. As a result of not having repaid these amounts, Kinetics may declare a default under the debt agreement. As of November 14, 2002 no default has been declared and the Company is currently negotiating to reach a settlement with Kinetics.

     The Company’s indebtedness with Ocean Bank of $44.0 million contains a cross-default provision linked to a default under the debt agreements with Cupertino and Kinetics. The current default under the debt with Cupertino would allow Ocean Bank to call a default under the credit agreement. However, the Company has obtained a letter from Ocean Bank waiving any default under the credit agreement with them resulting from a default under the Company’s indebtedness to Cupertino or Kinetics. This waiver from Ocean Bank is effective until December 31, 2002.

     The Company has not paid approximately $918,000 of accrued interest due September 30, 2002 on the convertible debentures. As a result, $30.7 million of such convertible debentures are in default and classified as a current liability in the Company’s September 30, 2002 balance sheet. As of November 14, 2002 no holder of the debentures requested an acceleration of payment. The Company has made an offer to all of the holders of the convertible debentures to convert their debentures, including accrued interest as of September 30, 2002, into the Company’s common shares at the lower of their current conversion price or a conversion price of $0.75. Approximately $26.4 million of the convertible debentures have stated conversion prices in excess of $0.75 per share. The Company has not paid approximately $28,000 due under its $803,000 note to a financial institution. Accordingly, this note is also in default.

     The Company has identified additional potential customers and is actively marketing to them available services at the NAP of the Americas. The Company’s plan is predicated on obtaining additional customer contracts through March 31, 2003, which on an annual basis will generate revenues of approximately $15 million. The Company has also been pursuing and continues to seek sources of additional debt and equity financing. The Company’s failure to obtain adequate terms from creditors and additional debt or equity financing and meet its plan will result in liquidity problems and require the Company to curtail in whole or in part current operations. There can be no assurances that the Company’s plan will be adequately implemented in the time frame contemplated, even if such funds are obtained. Further, any additional equity financing if obtained will be dilutive to existing shareholders. The Company’s ability to obtain financing may be adversely affected by future declines in the technology sector and general economic conditions. As a result of these matters, substantial doubt exists about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

7

Terremark Worldwide, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2002

     The Company intends to allocate its financial resources to activities that are consistent with its strategy of developing and operating TerreNAP Data Centers, including the NAP of the Americas. However, the development of the NAP of the Americas and other TerreNAP Data Centers will require substantial capital resources. As part of the Company’s business strategy, it intends to continue to evaluate potential acquisitions, joint ventures and strategic alliances in or with companies that provide services or operations that complement the Company’s existing businesses. These acquisitions may also require financing, which may not be available to it on acceptable terms.

     The deployment of the Company’s TerreNAP Data Center strategy will require the Company to expend substantial resources for leases, assets, equipment and hiring of network, administrative, customer support and sales and marketing personnel. These expenditures commence well before a TerreNAP Data Center opens, and it may take an extended period for the Company to approach break-even. To date, the Company has funded its operations through private debt and equity offerings. However, because the Company has not yet achieved positive cash flow from operations, the Company will continue to require capital support until it is cash flow positive. The Company intends to continue to allocate its financial resources to activities that are consistent with its expansion strategy, such as making additional significant investments in sales and marketing and the development of new services. The Company’s business could be adversely affected if it were unable to obtain necessary licenses and approvals in order to expand its services and enter new markets.

     The market for Internet infrastructure services has only recently begun to develop and is evolving rapidly. The market for Internet infrastructure services is extremely competitive and subject to rapid technological change. Management believes that the Company has some competitive advantages. However, the market for Internet infrastructure services is characterized by few barriers to entry. Current and potential competitors include: providers of data center services; global, regional and local telecommunications companies and regional Bell operating companies; and information technology outsourcing firms. As the Company continues to expand operations in markets outside the United States, it will also encounter new competitors and competitive environments. The Company believes that the market for Internet infrastructure services is likely to consolidate in the near future, which could result in increased price and other competition.

     The Company’s strategy includes the expansion of operations through the opening of additional TerreNAP Data Centers. Some of the Company’s customers are emerging growth companies that may have negative cash flows and the Company may not be able to collect receivables on a timely basis. If the Company were unable to effectively manage its expansion it would have a material adverse effect on its business. The Company’s success is substantially dependent on the continued

8

Terremark Worldwide, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2002

growth of its customer base and the retention of current customers. The Company’s customer service could suffer if it is unable to obtain satisfactory services from local communications providers. The loss of one or more of the Company’s suppliers may slow its growth or cause it to lose customers. The Company’s business could be harmed by prolonged electrical power outages, shortages or increased costs of energy. The Company’s success is also dependent on its Chairman, Manuel D. Medina.

     The Company conducts business internationally and its operations could be subject to various foreign taxes. Distributions and other payments from the Company’s subsidiaries and affiliates may also be subject to foreign taxes, reducing its earnings. The Company does not have plans to pay dividends on its common stock and covenants in its financing agreements prohibit the payment of dividends. If the Company’s stock were to be delisted from the American Stock Exchange, its stockholders could find it difficult to sell the Company’s stock and the price of the Company’s stock could be adversely affected.

3.     Summary of Significant Accounting Policies

     Basis of presentation

     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles for complete annual financial statements. The unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary to present a fair presentation of the results for the interim periods presented. Operating results for the quarter ended September 30, 2002 may not be indicative of the results that may be expected for the year ending March 31, 2003. Amounts as of March 31, 2002, included in the condensed consolidated financial statements have been derived from audited consolidated financial statements as of that date.

     These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended March 31, 2002.

     Use of estimates

     The Company prepares its financial statements in conformity with generally accepted accounting principles in the United States of America. These principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include revenue and costs related to construction contracts and impairment of long-lived assets.

9

Terremark Worldwide, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2002

     Reclassifications

     Certain reclassifications have been made to the prior periods’ financial statements to conform with current presentation.

     New accounting standards

     As of April 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 141 (FASB 141), Business Combinations, and Statement of Financial Accounting Standards No. 142 (FASB 142), Goodwill and Other Intangible Assets. FASB 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. FASB 142 changes the accounting for goodwill from an amortization method to an impairment-only approach.

     As of April 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144 (FASB 144), Accounting for the Impairment or Disposal of Long-Lived Assets. FASB 144 supercedes FASB 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of business. FASB 144 retains the requirements of FASB 121 for recognition and measurement of an impairment loss on long-lived assets, and establishes a single accounting model for all long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. The adoption of FASB 143 and 144 has had no impact on the Company’s September 30, 2002 financial results.

     In April 2002, the Financial Accounting Standards Board (FASB) approved SFAS 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections. In addition to rescinding SFAS 4, 44, and 64 and amending SFAS 13, SFAS 145 establishes a financial reporting standard for classification of extinguishment of debt in the financial statements in accordance with APB 30. SFAS 145 will be effective for the Company’s fiscal year ended March 31, 2004. Management does not expect the adoption of SFAS 145 to have a material effect on the Company’s financial position or results of operations.

     In June 2002, the FASB approved SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS 146 will be effective for exit or disposal activities initiated after December 31, 2002, with early application encouraged. Management does not expect the adoption of SFAS 146 to have a material effect on the Company’s financial position or results of operations.

10

Terremark Worldwide, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2002

     Significant concentrations

     Two customers accounted for approximately $628,000 and $473,000 in data center revenues for the six months ended September 30, 2002, respectively. Two customers accounted for approximately $420,000 and $240,000 in data center revenues for the three months ended September 30, 2002, respectively.

4.     Identifiable Intangible Assets and Goodwill

     Identifiable intangible assets consist primarily of certain rights and contracts. In accordance with FAS 142, the Company ceased amortization of its intangible assets as of April 1, 2002 and therefore recorded no amortization for the six months ended September 30, 2002. During the six months ended September 30, 2002, intangible assets were amortized on the straight-line method over five years. Intangible assets will be tested for impairment annually. The Company does not currently believe its intangible assets are impaired. Identifiable intangible assets and goodwill at September 30, 2002 and March 31, 2002 consist of TECOTA promote interest of $904,964, NAP of the Americas intangible of $9,999,871 and Post Shell goodwill of $2,315,336, net of accumulated amortization of $4,773,029. If in subsequent periods anticipated construction contracts are not entered into, an additional impairment charge for the Post Shell goodwill may be required.

     A reconciliation of net loss and loss per share to exclude amortization expense in the prior year period follows:

	For the six months ended
	September 30,
	2002			2001
Reported net loss	$	17,390,614		$	(21,314,776	)
Add back: goodwill amortization		—			1,479,135
Adjusted net loss	$	17,390,614		$	(19,835,641	)
Basic and diluted loss per share:
Reported net loss	$	(0.08	)	$	(0.10	)
Goodwill amortization		—			0.01
Adjusted net loss	$	(0.08	)	$	(0.09	)

11

Terremark Worldwide, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2002

5. Notes Payable

     Notes payable consist of the following:

	September 30,		March 31,
	2002		2002
	(unaudited)
Note payable to a financial institution, collateralized by substantially all assets of the NAP of the Americas and a personal guaranty of the Chief Executive Officer. Interest accrues at 7.50%, payable monthly, with principal balance due September 2003. Maturity date may be extended for two six-month periods subject to certain conditions.	$	43,974,553	$	43,293,333
Unsecured note payable to certain directors and a shareholder of the Company and guaranteed by the Chief Executive Officer. Interest accrues at 8.25%, with principal installments of $150,000 and interest due quarterly commencing March 31, 2002 and maturing on June 23, 2003.		—		3,500,000
Unsecured note payable to a corporation controlled by a shareholder, interest accrues at 15%. Principal and interest due in January 2003.		1,600,000		1,600,000
Note payable to the Chief Executive Officer. Interest accrues at 10%. Principal and interest due December 2002.		1,000,000		—
Note payable to a financial institution, collateralized by certain assets of a director and certain shareholders of the Company. Interest accrues at 1% over prime, with principal and interest payments due monthly and remaining amount due December 2002.		803,168		1,375,000
Unsecured notes payable to certain executives and directors of the Company and third party corporations, interest accrues at 13%. Principal and interest due December 31, 2002 ($1,850,000 due to related parties).		1,850,000		2,100,000
Unsecured note payable to a corporation controlled by a shareholder, interest accrues at 15%. Principal and interest due December 2002.		1,000,000		1,000,000
Unsecured note payable to the Chief Executive Officer. Interest accrues at 7.5%, payable monthly, with principal installments of $50,000 due on a quarterly basis commencing on June 26, 2002, and maturing on June 26, 2003.		150,000		250,000

12

Terremark Worldwide, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2002

	September 30,		March 31,
	2002		2002
	(unaudited)
Unsecured note payable to a corporation in seventy-five monthly installments of principal and interest beginning January 1, 1999. Interest accrues at 9.5%.		212,567		226,092
Unsecured notes payable to individuals, interest accrues at 8%, with interest due monthly. Matured and currently due.		88,682		138,442
Unsecured notes payable to corporations. Interest ranges from 10% -15%. Principal and interest generally due in monthly installments.		63,777		397,433
		50,742,747		53,880,300
Less current portion of notes payable		50,578,180		50,752,209
Notes payable, less current portion	$	164,567	$	3,128,091

     See Note 2 for debt currently in default.

     In May 2002, the Company obtained a $1.5 million loan at 10% interest from its Chief Executive Officer. During September 2002 the Company repaid $500,000 plus accrued interest of $48,493 on this note.

     On September 5, 2001, the Company closed on a $48 million loan. During August 2002, the Company modified the facility. Under the modified terms, the initial maturity date has been extended to September 2003 and the Company has the option to exercise two six-month extension periods each at a cost of 0.5% of the principal balance outstanding together with a principal repayment of $2.5 million. During each period under extension, a $250,000 monthly principal repayment plus interest is due. At closing, the total amount of the loan was disbursed except for approximately $6.6 million that was held as an interest reserve. Through June 2002, the interest reserve was disbursed monthly to make interest payments. The amendment reduced the annual interest rate to 7.50%. The Company commenced making monthly interest payments in July 2002. All other material provisions of the credit facility have remained unchanged. To obtain the original loan, the Company paid a $720,000 commitment fee to the lender. The proceeds of the original credit facility were used to:

• repay a $10 million short-term loan from Manuel D. Medina, the Company’s Chief Executive Officer, the proceeds of which the Company had used to fund the build out of the NAP of the Americas (he, in turn, used the $10 million to repay a personal $10 million short-term loan from the bank);

• repay $3.5 million of debt that the Company owed to the bank under a line of credit personally guaranteed by Mr. Medina;

13

Terremark Worldwide, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2002

• pay $1.2 million in loan costs related to the $48 million credit facility (including $720,000 commitment fee); and

• fund the NAP of the Americas build out costs.

     The credit facility is secured by all of the Company’s assets and allows for up to a $25 million junior lien position on the assets of our NAP of the Americas, Inc. subsidiary. Mr. Medina has personally guaranteed the $48 million credit facility.

     In addition to Mr. Medina’s personal guarantee of the credit facility, and in order to obtain the facility, the bank further required Mr. Medina, prior to the bank disbursing funds under the credit facility, to (i) provide $5.0 million certificate of deposit to the bank as collateral on certain personal loans that Mr. Medina has with the bank and (ii) commit to accelerate the maturity date of those personal loans to December 31, 2001. Subsequent to September 2001, Mr. Medina and the bank changed the maturity date on the personal loans, first to December 31, 2001 and later to July 1, 2002. In the event of the Company’s default under the credit facility Mr. Medina also agreed to subordinate debt that the Company owed to Mr. Medina. Mr. Medina has repaid part of those personal loans to the bank through liquidation of the $5.0 million certificate of deposit in January 2002 leaving an outstanding principal balance of approximately $5.4 million and he exercised his right under such personal loan agreements to extend their maturity date from July 1, 2002 to December 31, 2002.

     On September 5, 2001 and in consideration of Mr. Medina’s agreeing to repay his indebtedness to the bank earlier than otherwise required, pledging the certificate of deposit to the bank and personally guaranteeing the $48 million credit facility and approximately $21 million of construction payables, the Company entered into an amended and restated employment agreement with him. Under the terms of the amended and restated employment agreement, the Company will indemnify Mr. Medina from any personal liability related to his guarantees of the Company’s debt, use commercially reasonable efforts to relieve Mr. Medina of all his guarantees of the Company’s debt, provide up to $6.5 million of cash collateral to the bank should Mr. Medina be unable to repay the personal loans when due and provide a non interest-bearing $5.0 million loan to Mr. Medina for as long as his guarantees of the Company’s debt exist. If the loan to Mr. Medina becomes in default, the Company has a right of offset against all amounts payable by the Company to Mr. Medina, the aggregate of which is approximately $3.0 million as of September 30, 2002. The note receivable from Mr. Medina is shown as an adjustment to equity. The $48 million credit facility and the note receivable from Mr. Medina have been approved by the Board of Directors.

     In July 2002, the Company and Mr. Medina modified the terms of his $5.0 million non-interest bearing note payable to the Company. As amended, the note has a maturity date of December 5, 2004 and bears interest subsequent to September 5, 2002 at 2%, the applicable federal rate. Interest is due in bi-annual installments. On a quarterly basis, the Company will review the collectibility of this note. As of November 14, the Company owed Mr. Medina approximately $3.0 million. The Company has the right to withhold payment to Mr. Medina of $1,375,000 in amounts owed.

     The terms of the Company’s note payable to a financial institution with an $803,168 balance at September 30, 2002 was modified and extended in August 2002. Under the terms of the modified note, the maturity date has been extended to December 2002 and principal and interest payments will be made monthly with remaining amount due at maturity. The note to the financial institution was personally guaranteed by a former officer of a company which the Company acquired during 2000. In connection with that acquisition, the Company agreed to obtain the release of the former officer's personal guarantee and collateral. The Company, the financial institution and the former officer entered into an agreement pursuant to which the former officer's personal guarantee of the note was released. As part of the transaction, $146,832 which had been pledged to the financial institution by the former officer was applied to the loan balance. In addition, the Company paid the former officer $25,000, forgave $25,000 of a loan to the former officer and issued 400,000 shares of the Company's common stock to the former officer. In addition, a $10,000 obligation of the former officer to the Company was modified to provide that any proceeds received by the former officer from the sale of the 400,000 shares shall be applied to the obligation and such obligation shall be repaid no later than August 2003. The Company has agreed to register the shares under the Securities Act. The Company has not paid $29,000 in principal and interest due October 31, 2002 related to this note payable. As a result of not having paid this amount, the financial institution may declare a default under the note.

14

Terremark Worldwide, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2002

6.     Construction Payables – Property and Equipment

     Construction payables include approximately $21.6 million of amounts due to two vendors under promissory notes maturing from October 2002 through November 2002 and bearing interest at annual rates ranging from 8.5 to 10 percent (see Note 2). Approximately $18 million of the amounts due under the promissory notes are guaranteed by Mr. Medina. These amounts relate to construction of the NAP of the Americas and the Company’s colocation facility in Santa Clara, California.

7.     Convertible Debt

     The Company has outstanding approximately $26.4 million and $4.3 million of 13% and 13.125% subordinated convertible debt as of September 30, 2002. The 13% debt matures on December 31, 2005 and the 13.125% debt matures on August 30, 2004. The debt is convertible into the Company’s stock at a weighted average conversion price of $1.87 and $0.66 for the convertible debt issued at 13% and 13.125%, respectively. Prepayment by the Company is permitted under both debt instruments, but will entitle holders of the 13% subordinated debentures to warrants or a premium over their outstanding principal and interest based upon the following schedule:

Year	Redemption Price
2002		104	%
2003		103	%
2004		102	%
2005		100	%

     The Company has not paid the accrued interest due on September 30, 2002, of approximately $918,000 (see Note 2).

8.     Changes to Stockholders’ Equity

     During the six months ended September 30, 2002, the Company entered into the following equity transactions:

     Common stock

     In April 2002, the Company received a binding commitment from two directors and some of the Company’s shareholders for the purchase of $7.5 million of common stock at $0.75 per share. In May 2002, the transaction was completed by receiving $3.6 million in cash and the conversion of $3.9 million in short term promissory notes to equity.

15

Terremark Worldwide, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2002

     In April 2002, the Company entered into a Put and Warrant purchase agreement with TD Global Finance (“TDGF”). On July 19, 2002, the Company exercised its right to sell TDGF 17,648,824 common shares for $0.58 per share for a total of $10.2 million. In conjunction with the sale, the Company issued three call warrants, each granting TDGF the right to purchase 1,176,588 shares of the Company’s common stock. The warrants expire on January 16, 2003 and may be exercised in any order at $0.57, $0.67 and $0.77 per share, respectively. During August 2002, the Company received the $10.2 million in related cash. The Company used these proceeds and will use the proceeds from any exercise of the warrants for general corporate purposes.

     In June 2002, the NAP de las Americas – Madrid purchased 5 million shares of the Company’s common stock at $1.00 per share. As a result of the sale of common shares to TDGF in July 2002 the Company is obligated to issue an additional 3.6 million shares to NAP de las Americas-Madrid S.A. As of November 14, 2002 these shares have not yet been issued.

     In August 2002, the Company issued 100,000 warrants valued at $60,000 which were subsequently converted to 100,000 shares of common stock for $61,000 through the conversion plus receipt of $1,000 in cash.

     Common stock warrants

     On April 1, 2002, the Company issued warrants to purchase 600,000 shares of common stock to a third party for services. The exercise price of the warrants is $0.40 per share with a $220,800 estimated value. The warrants were immediately exercisable and have a five year life.

     In July 2002, the Company issued warrants to purchase 100,000 shares of common stock to a third party for services. The exercise price of the warrants is $0.54 per share with a $20,900 estimated value. The warrants were immediately exercisable and have a one year life.

     In August 2002, in conjunction with the exercise of the Put and Warrant purchase agreement, the Company issued warrants to purchase 1,176,588 shares of common stock to an international financial institution. The exercise price of the warrants is $0.57, $0.67 and $0.77 per share, respectively, with a $669,479 estimated value. The warrants expire January 16, 2003 and may be exercised in any order.

16

Terremark Worldwide, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2002

9.     Related Party Transactions

     Due to the nature of the following relationships, the terms of the respective agreements might not be the same as those that would result from transactions among wholly unrelated parties. All significant related party transactions require approval by the Company’s Board of Directors.

     In October 2002, the Company made interest payments of approximately $162,000 related to notes payable to shareholders and directors.

     In June 2002, the Company acquired for $250,000, 10% of the equity in the NAP de las Americas-Madrid S.A. During the six months ended September 30, 2002, the Company recognized approximately $268,000 in revenues from NAP de las Americas-Madrid S.A.

     Included in the September 30, 2002 and March 31, 2002 balance sheet are amounts due from related parties including $5.0 million note receivable (Note 5), approximately $4.6 million and $7.2 million in notes payable (Note 5) and approximately $4.5 million in convertible debt (Note 7).

     Included in accounts receivable is a non-trade receivable of approximately $210,000 due from a related party. There is also a corresponding payable of approximately $59,000 to the same related party.

10.      Information about the Company’s Operating Segments

     As of September 30, 2002 and March 31, 2002, the Company had two reportable business segments, data center operations and real estate services. The data center operations segment provides Tier 1 NAP, Internet infrastructure and managed services in a data center environment. The real estate services segment constructs, develops and manages real estate projects primarily related to Telecom space. The Company’s reportable segments are strategic business operations that offer different products and services.

     During the six months ended September 30, 2001, the Company had an additional segment, telecom facilities management, which developed, managed and leased facilities catering primarily to the telecommunications industry. In conjunction with the Company’s change in its strategy related to its colocation facility in Santa Clara, California, the Company no longer considers the remaining operations to be separate from its other two segments. Therefore, amounts unrelated to the colocation facility have been reclassified in the prior period presentations to their respective September 30, 2002 segments.

     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.

17

Terremark Worldwide, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2002

     The following presents information about reportable segments.

				Telecom
For the six months	Data center			facilities			Real estate
ended September 30,	operations			management			services			Total
2002
Revenue	$	5,574,047		$	—		$	3,301,247		$	8,875,294
(Loss) income from operations		(11,178,580	)		—			46,368			(11,132,212	)
Net (loss) income		(17,446,727	)		—			56,113			(17,390,614	)
2001
Revenue	$	621,453			—		$	8,928,798		$	9,550,251
(Loss) income from operations		(12,827,506	)		(8,055,909	)		(1,569,470	)		(22,452,885	)
Net (loss) income		(14,562,194	)		(8,425,443	)		1,672,861			(21,314,776	)
Assets, as of
September 30, 2002	$	71,250,458		$	—		$	6,562,223		$	77,812,681
March 31, 2002		69,644,606			—			11,379,325			81,023,931

11.     Subsequent Events

     On October 24, 2002, the Company received a $3.0 million unsecured 90-day loan at 10% interest.

     On October 15, 2002, one of the Company’s subsidiaries entered into a joint venture agreement to develop and operate a HIPPA compliant network access point at the NAP of the Americas in Miami, Florida. The Company’s subsidiary currently owns 10% of the outstanding membership interests of MedNAP L.L.C., the joint venture company. The Company acquired the 10% interest through a $1.0 million promissory note. The Company has the option to acquire 80% of the joint venture. Payments are due in equal installments of $55,555.55 together with accrued interest monthly commencing on November 1, 2002. As of November 14, 2002, the Company has not made the first payment. The Company has a 30 day period after the payment due date to make the payment. The joint venture company has entered into a services agreement with the NAP of the Americas.

     On October 30, 2002, the Company entered into an agreement with an individual to assist in raising additional capital for the Company. The Company paid the individual $180,000 and agreed to issue warrants to purchase 1.2 million shares at $0.75 per share as an advance against the commission for future capital raised.

* * * * *

18

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 Annual Report on Form 10-K for the year ended March 31, 2002, 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 Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are indicated by words or phrases such as “anticipate,” “projects,” “management believes,” “Terremark believes,” “intends,” “expects,” and similar words or phrases. Such forward-looking statements are subject to certain risks, uncertainties or assumptions and may be affected by certain other factors. These factors are set forth below.

     Should one or more of these risks, uncertainties or other factors materialize, or should underlying assumptions prove incorrect, actual results, performance or achievements of Terremark Worldwide may vary materially from any future results, performance or achievements expressed or implied by the forward-looking statements.

     All subsequent written and oral forward-looking statements attributable to Terremark Worldwide or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Readers are cautioned not to place undue reliance on forward-looking statements. Terremark Worldwide undertakes no obligation to publicly revise any forward-looking statements to reflect events or circumstances that arise after the filing of this Form 10-Q.

Overview

     We are an internationally recognized multinational facilitator of Internet connectivity and provider of Internet infrastructure and managed services. We are the owner and operator of the NAP of the Americas, the fifth Tier-1 Network Access Point in the world. The NAP of the Americas, the first TerreNAP(SM) Data Center, and the only carrier-neutral Tier-1 Network Access Point, or NAP, is located in Miami, Florida and provides peering, colocation and managed services to carriers, Internet service providers, and other Internet companies and enterprises.

     The NAP of the Americas provides a neutral connection point where telecommunications carriers can establish connections between and among their networks to exchange Internet traffic either on a settlement-free basis (a process known as “peering”) or for a fee (known as “transit”), and can purchase capacity from each other. The NAP of the Americas also provides premium-class space where carriers, Internet Service Providers, Application Service Providers, content providers, Internet businesses, telecommunications providers and enterprises house their equipment and their network facilities in order to be close to the traffic exchange connections that take place at the NAP. This is known as colocation. In addition, the NAP of the Americas provides a menu of related managed services, such as a meet-point room, power management, and managed router services. We believe that the NAP of the Americas is becoming a primary channel of Internet traffic from Central and South America and the Caribbean to North America and Europe.

     We were founded in 1982. 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 on the American Stock Exchange. Historical information of the surviving company is that of Terremark Holdings, Inc.

19

Industry

     Network Access Points are locations where two or more networks meet to interconnect and exchange Internet traffic (traffic of data, voice, images, video and all forms of digital telecommunications), much like air carriers meet at airports to exchange passengers and cargo. Instead of airlines and transportation companies, however, participation in NAPs comes from telecommunications carriers, ISPs and large telecommunications and Internet users in general. Tier-1 NAPs are large centers that access and distribute Internet traffic and, following the airport analogy, operate much like large, international airport passenger and cargo transportation terminals or “hubs.”

     When this exchange of Internet traffic is done settlement-free, the process is known as “peering” because “peers” transfer like amounts of Internet traffic. When the exchange of Internet traffic is done for a fee, it is known as “transit.” In either case, facilitating this exchange of Internet traffic is the primary service offered by all NAPs, which we will refer to collectively in this Report as “peering.”

     All five of the existing Tier-1 NAPs are in the United States. The first four were built in the early 1990’s to serve the northern part of the country, from East Coast to West Coast, and are located in New York, Washington, Chicago and San Francisco. These NAPs were built with sponsorship from the National Science Foundation in order to promote Internet development and used the existing infrastructures of telecommunication companies, to which ownership of the NAPs was eventually transferred. These four Tier-1 NAPs offer only peering services.

     We own and operate the fifth Tier-1 NAP, which is known as the NAP of the Americas, and is located in Miami, Florida. While the NAP of the Americas also offers peering services, it is the only one of the five Tier-1 NAPs that enables customers to “colocate” equipment next to each other, and provides customers with other managed services. Using the airport analogy again, at the NAP of the Americas Internet traffic is exchanged, redirected to different destinations, and several managed services are provided, similar to what happens in air terminals with the provision of fuel, maintenance, spare parts, food, etc. This activity among the multiple participants at the NAP of the Americas creates a critical mass of customers and makes up a real and virtual market in which everyone can buy from and sell to each other and in which, in a unique manner, buyers and sellers share the same facilities and services.

     During the past year, the telecommunications and Internet infrastructure industry has come under economic and commercial pressure to restructure and reduce costs. While this uncertain environment has presented us with certain challenges that are more fully set forth below, it is important to highlight some of the positive effects that the current industry situation has had on the growth of the NAP of the Americas. For example, as many telecom and Internet companies have been forced to reduce their overhead, the market of talented employees available to us has increased while those same companies also are tending to outsource more of their internal technology needs. As a result, we have been able to build a very robust Network Services Team, thereby reducing our reliance on third party vendors and consultants. These employees form the outsourcing core of a proprietary knowledge base that is enhanced by daily interactions with our customers providing us with insights into our customer issues so that we can present them with targeted, value added solutions.

     Another positive side effect of the industry downturn is that many telecommunications carriers discontinued plans to build their own data centers to provide high quality colocation space for their customers. This retrenchment, however, did not reduce their need to present their customers with competitive offerings that include highly conditioned, carrier-grade colocation facilities. Consequently, the NAP of the Americas has become an attractive solution for these telecommunications carriers because we built the facility specifically to address the needs of the most demanding telecommunications and enterprise customers. Although our significant investment in the NAP of the Americas has placed burdens on our financial resources, we believe that our strategy will be successful as our customers turn to us as an alternative to making these expenditures themselves.

20

Strategy

     The NAP of the Americas represents a new and unique breed of Internet infrastructure business. It is neither a traditional data center, nor a traditional NAP. It combines exchange point services (to facilitate peering), carrier-grade colocation space and managed services. Our strategy is to leverage our experience as the owner and operator of the NAP of the Americas to develop and operate TerreNAP(SM) Data Centers, primarily in Europe and Latin America. TerreNAP(SM) Data Centers provide exchange point services (for peering or transit), colocation and managed services to carriers, Internet Service Providers, other Internet companies and enterprises. We intend to use our 20 years of experience in dealing with Latin America, the know-how gained through our designing, engineering, building and operating the NAP of the Americas and the expertise of our employees, many of whom were formerly executives with GTE, Nortel, AT&T, BellSouth and Telcordia, for example, to roll out additional TerreNAP(SM) Data Centers in our target markets.

     The NAP of the Americas provides the following value proposition to its customers:

• Carrier-neutrality: Tier-1 telecommunications carriers are willing to colocate their equipment within our facility because they know that we will not give preference to any individual or group of customers.

• Connectivity: The NAP’s connectivity allows our customers to access the NAP through almost any provider they choose, because virtually all significant network providers are present at the NAP.

• “Zero-Mile” Access: Because the NAP provides carrier-grade colocation space directly adjacent to the peering point, there is minimal distance between the peering point and customers’ equipment, which reduces points of failure and cost and increases efficiency.

• The NAP’s Service Level Agreements: The NAP guarantees 100% power availability and environmental stability at a level of reliability unmatched by other facilities.

• Lower Costs And Increased Efficiency: The combination of these attributes helps our customers reduce their total costs of providing services to their customers by eliminating local loop charges to connect their facility to the peering point, backhaul charges to and from connecting points, and the cost of redundancy to mitigate risks associated with increased points of failure along these routes.

     We expect that TerreNAP Data Centers that we deploy in Latin America and Europe will reflect these same characteristics.

     In February 2002, we entered into an agreement with Fundacao de Amparo a Pesquisa do Estado de Sao Paulo, the research foundation for the State of Sao Paulo, to operate and manage Brazil’s premier NAP created by FAPESP, which we have renamed the NAP do Brasil. Pursuant to the twenty year agreement, FAPESP turned over the exchange point to Terremark, which we intend to enhance and intend to move to new facilities modeled after the operational design of the NAP of the Americas within the next 12 months. FAPESP will receive 6% of the revenue generated by the enhanced NAP do Brazil for the first five years of operation, 5% during the following five years, and 1% during the last ten years. The term may be extended for an additional ten-year period, during which FAPESP would again receive 1% of revenues.

     In June 2002, we entered into an exclusive agreement with the Comunidad Autonoma de Madrid to develop and operate carrier-neutral network access points in Spain. As part of that agreement the parties formed NAP de las Americas — Madrid S.A. to own and operate carrier-neutral NAPs in Spain, modeled after the NAP of the Americas. The shareholders in this new company are the Instituto Madrileno de Desarrollo — IMADE, the Camara Oficial de Comercio e Industria de Madrid, Red Electrica

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Telecomunicaciones, S.A., Telvent Desarrollos S.A., a subsidiary of Abengoa S.A., and Centro de Transportes de Coslada, S.A. At the time the NAP de las Americas — Madrid S.A. was formed we owned 1% of its equity, which we subsequently increased to 10%. We also have the option to purchase up to another 30% of the shares owned by the Comunidad and the Camara at cost, plus LIBOR. We will provide the technical and operational know-how for the development of an interim NAP which became operational in July 2002. Based on our expertise in designing, engineering, constructing and operating Tier-1 carrier-neutral NAPs, we will work with NAP de Las Americas — Madrid S.A. to select a permanent site, design the Madrid NAP and operate the business going forward. During the six months ended September 30, 2002, we recognized approximately $268,000 in revenues from the NAP de Las Americas - Madrid S.A.

     When these facilities are operational, we will have TerreNAP Data Centers at the major crossroads of Internet traffic. Miami, the home of the NAP of the Americas, is ranked by Telegeography in its Packet Geography 2002 as the No.1 International Internet Hub City for Latin America and the Caribbean; Sao Paulo, where Terremark’s NAP do Brasil is located, is ranked No. 2; and Madrid is the 11th of the Top 50 International Internet Hub Cities in the world. The Madrid NAP will also benefit from Madrid’s strategic geographic location by serving as an Internet gateway to the European Union, North Africa and the Americas.

     We continue to explore other locations and have additionally targeted Mexico as another prospective hub city in Latin America for expansion.

    Our Model

     To implement our strategy and meet our current obligations we will need additional capital as more fully discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.” In an effort to limit the additional capital required, our business model for expansion is best compared to that of a management company model in the hospitality industry. The model contemplates that a local in-country partner would own and fund the development and build-out of the location (the real estate company) where the TerreNAP Data Center will be located. The facility will ideally be a ground-up development built to the exacting specifications required for a top level NAP (as is the case in Miami), but it may be located in an existing building that is retrofitted to conform to those specifications. We intend to control the operations of the NAP and be the primary tenant in our partners’ building sharing revenue via a long-term lease or management contract.

    Customers

     As of October 30, 2002, we have signed customer contracts that represent approximately $13.2 million of annualized recurring revenue with an average term of five years. This committed annual recurring amount typically includes revenue from colocation, exchange point and power services. However, it excludes revenue from managed services, which we expect will continue to increase as a percentage of total revenue. Latin American Nautilus USA Inc. and Progress Telecom accounted for more than 10% each of Data Center revenues for the quarter ended September 30, 2002 and the six months ended September 30, 2002.

Results of Operations

  Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001

     Revenue. Total revenue decreased $0.7 million to $3.7 million for the three months ended September 30, 2002.

     Data center revenue increased $2.0 million from $0.4 million for the three months ended September 30, 2001 to $2.4 million for three months ended September 30, 2002. The increase was attributable to increased sales of our exchange point, colocation and managed services offered at the NAP, driven by the increase in our customer base and new managed services. The data center revenue in the comparable

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period for the prior year was derived from sales of our exchange point and colocation services offered at the NAP.

     Development, commission and construction fees decreased approximately $1.1 million, or 94.6%, from $1.1 million for the three months ended September 30, 2001 to approximately $59,000 for the three months ended September 30, 2002. This decrease is a result of our exiting of the real estate industry and reducing our telecom facilities management operations.

     Management fees earned decreased approximately $371,000, or 91.4%, from $406,000 for the three months ended September 30, 2001 to approximately $35,000 for the three months ended September 30, 2002. The decrease is a result of our exiting the management of commercial and residential properties. As of September 30, 2002, the only facility we manage is the property where the NAP of the Americas is located.

     Construction contract revenue decreased $1.3 million, or 52.0%, from $2.5 million for the three months ended September 30, 2001 to $1.2 million for the three months ended September 30, 2002. The decrease is attributable to the reduction in the number of construction contracts in fiscal year 2003 as compared to fiscal year 2002. As of September 30, 2002, we had one construction contract in process as compared to September 30, 2001 when we had four construction contracts in process.

     Data Center Operations Expenses. Data center operations expenses decreased $0.4 million, or 12.5%, from $3.2 million for the three months ended September 30, 2001 to $2.8 million for the three months ended September 30, 2002. The decrease was attributable to a reduction in rent expense on the NAP facility. During the comparable period in fiscal year 2002 we incurred rent expense for both the NAP and Interim NAP locations. During the comparable period in fiscal year 2003 we only incurred rent expense for the NAP location. This decrease was partially offset by increases in operations personnel, electricity and chilled water costs which have increased as more customers utilize the NAP of the Americas. With the exception of electricity and chilled water, the majority of these expenses are fixed in nature. We expect that our costs of electricity and chilled water costs will increase in the future as more customers utilize the NAP of the Americas.

     Construction Contract Expenses. Construction contract expenses decreased $1.0 million, or 52.6%, from $1.9 million for the three months ended September 30, 2001 to $0.9 million for the three months ended September 30, 2002. The decrease is attributable to the reduction in the number of construction contracts in fiscal year 2003 as compared to fiscal year 2002. As of September 30, 2002, we had one construction contract in process as compared to September 30, 2001, when we had four construction contracts in process. We do not currently anticipate any losses on this contract.

     General and Administrative Expenses. General and administrative expenses decreased by $1.6 million, or 33.3%, from $4.8 million for the three months ended September 30, 2001 to $3.2 million for the three months ended September 30, 2002. This decrease is attributable to the decrease in administrative personnel and corporate infrastructure related to non-core assets.

     Sales and Marketing Expenses. Sales and marketing expenses decreased $0.2 million, or 14.3%, from $1.4 million for the three months ended September 30, 2001 to $1.2 for the three months ended September 30, 2002. The decrease is principally due to the decrease of sales personnel.

     Depreciation and Amortization Expense. Depreciation and amortization expense decreased $0.7 million, or 34.9%, from $2.0 million for the three months ended September 30, 2001 to $1.3 million for the three months ended September 30, 2002. The decrease resulted primarily from the cessation of amortization related to intangible assets in accordance with current generally accepted accounting principles.

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     Impairment of Long-Lived Assets. During the three months ended September 30, 2001, in accordance with SFAS No. 121, we evaluated the carrying value of our leasehold improvements. Our Santa Clara facility was impaired due to a decline in the technology sector and general economic conditions. Accordingly we recorded an impairment charge of $6.5 million and adjusted the basis of the related asset. Continued decline in the colocation industry activities caused us in the quarter ended March 31, 2002 to change our classification for the facility to “held for sale”. As a result, we recorded an additional $5,521,355 impairment. These charges fully impaired the related assets and include approximately $1,530,000 in expected carrying and selling costs through December 2002. During the three months ended September 30, 2002, we recorded an additional $350,000 in expected carrying and selling costs through March 2003. The alternatives for this facility are to lease it or to sell our leasehold interest. In addition, during the three months ended September 30, 2002, we evaluated the carrying value of our remaining long-lived assets and determined that no additional impairment is required. However, the approximate $2.3 million carrying value at September 30, 2002 in goodwill related to the Post Shell acquisition could be impaired in future periods if we are unable to obtain anticipated future construction contracts.

     Interest Income. Interest income decreased $10,000, or 30.3%, from $33,000 for the three months ended September 30, 2001 to $23,000 for the three months ended September 30, 2002, due to a decrease in our average cash balances invested.

     Interest Expense. Interest expense increased $1.0 million, or 43.5%, from $2.3 million for the three months ended September 30, 2001 to $3.3 million for three months ended September 30, 2002. This increase was primarily due to an increase in the average debt balance outstanding, resulting primarily from $4.0 million in additional convertible debt, $22.0 million in promissory notes included in construction payables and $5.9 million in additional loans.

     Gain On the Sale of Real Estate Held for Sale. In July 2001, we sold Fortune House II for $17.2 million and recorded a gain of approximately $3.9 million. During the three months ended September 30, 2001, we sold two condominium units and recorded a net gain of $30,000. The last condominium unit was sold in the quarter ended March 31, 2002, therefore there was no real estate sold during the three months ended September 30, 2002.

     Net Loss. Net loss decreased $3.9 million, or 29.4%, from $13.3 million for the three months ended September 30, 2001 as compared to $9.4 million for the three months ended September 30, 2002. Changes in operating results include an increase in interest expense of $1.0 million which was offset by a decrease in depreciation and amortization of $0.7 million, decrease in sales and marketing of $0.2 million, decrease in data center operations of $0.4 million, decrease in construction contract expenses of $1.0 million and decrease in general and administrative expenses of $1.6 million.

Six Months Ended September 30, 2002 Compared to Six Months Ended September 30, 2001

     Revenue. Total revenue decreased $0.7 million, or 7.3%, from $9.6 million for the six months ended September 30, 2001 to $8.9 million for the six months ended September 30, 2002.

     Data center revenue increased $3.9 million from $0.6 million for the six months ended September 30, 2001to $4.5 million for six months ended September 30, 2002. The increase was attributable to our exchange point, colocation and managed services offered at the NAP, in addition to the increase in customer base. The NAP became operational on July 2001. The data center revenue in the comparable period for prior year was derived from our exchange point and colocation services offered at the Interim NAP and the NAP.

     Data center — contract termination fee was $1.1 million for the six months ended September 30, 2002 and represents amounts received from one customer for the termination of their contracted services with the NAP of the Americas. No such fees were received during the six months ended September 30, 2001.

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     Development, commission and construction fees decreased approximately $1.8 million, or 95.0%, from $1.9 million for the six months ended September 30, 2001 to approximately $77,000 for the six months ended September 30, 2002. This decrease is a result of our exiting of the real estate and telecom facilities management operations.

     Management fees earned decreased approximately $700,000, or 85.6%, from $818,000 for the six months ended September 30, 2001 to approximately $118,000 for the six months ended September 30, 2002. The decrease is a result of our exiting the management of commercial and residential properties. As of September 30, 2002, the only facility we manage is the property where the NAP of the Americas is located.

     Construction contract revenue decreased $3.1 million, or 50.0%, from $6.2 million for the six months ended September 30, 2001 to $3.1 million for the six months ended September 30, 2002. The decrease is attributable to the reduction in the number of construction contracts in fiscal year 2003 as compared to fiscal year 2002. As of September 30, 2002, we had one construction contract in process as compared to September 30, 2001 when we had four construction contracts in process.

     Data Center Operations Expenses. Data center operations expenses increased $1.9 million, or 47.5%, from $4.0 million for the six months ended September 30, 2001 to $5.9 million for the six months ended September 30, 2002. The increase was attributable to their being six months of operating expenses for the NAP of the Americas for the period ended September 30, 2002 versus three months of operating expenses for the comparable period in the prior year. In the prior period start up costs of $3.4 million were classified separately from data center operations expenses. Data center operations consist mainly of rent, operations personnel, electricity, chilled water and security services. With the exception of electricity and chilled water, the majority of these expenses are fixed in nature. We expect that our costs of electricity and chilled water costs will increase in the future as more customers utilize the NAP of the Americas.

     Start-Up Costs-Data Centers. There were no start-up costs recorded for the six months ended September 30, 2002. Start-up costs were approximately $3.4 million for the six months ended September 30, 2001 and primarily relate to the NAP of the Americas.

     Construction Contract Expenses. Construction contract expenses decreased $1.9 million, or 40.4%, from $4.7 million for the six months ended September 30, 2001 to $2.8 million for the six months ended September 30, 2002. The decrease is attributable to the reduction in the number of construction contracts in fiscal year 2003 as compared to fiscal year 2002. As of September 30, 2002, we had one construction contract in process as compared to September 30, 2001, when we had four construction contracts in process. We do not currently anticipate any losses on this contract.

     General and Administrative Expenses. General and administrative expenses decreased by $2.4 million, or 27.0%, from $8.9 million for the six months ended September 30, 2001 to $6.5 million for the six months ended September 30, 2002. This decrease is attributable to the decrease in our personnel and corporate infrastructure related to non-core assets.

     Sales and Marketing Expenses. Sales and marketing expenses remained consistent at $1.9 million for the six months ended September 30, 2001 and 2002.

     Depreciation and Amortization Expense. Depreciation and amortization expense was unchanged at $2.6 million for the six months ended September 30, 2001 as compared to the six months ended September 30, 2002. During the six months ended September 30, 2002, we ceased amortization of goodwill and intangible assets in accordance with FAS 144, resulting in a decrease of $1.5 million in amortization which was offset by an increase in depreciation for approximately $1.5 million primarily from assets of the NAP of the Americas.

     Impairment of Long-Lived Assets. During the six months ended September 30, 2001, in accordance with SFAS No. 121, we evaluated the carrying value of our leasehold improvements. Our Santa Clara facility was impaired due to a decline in the technology sector and general economic conditions. Accordingly we recorded an impairment charge of $6.5 million and adjusted the basis of the related asset.

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Continued decline in the colocation industry activities caused us in the quarter ended March 31, 2002 to change our classification for the facility to “held for sale”. As a result, we recorded an additional $5,521,355 impairment. These charges fully impaired the related assets and include approximately $1,530,000 in expected carrying costs through December 2002. During the three months ended September 30, 2002, we recorded an additional $350,000 in expected carrying costs through March 2003. In addition, during the six months ended September 30, 2002, we evaluated the carrying value of our remaining long-lived assets and determined that no additional impairment is required. However, the approximate $2.3 million carrying value at September 30, 2002 in goodwill related to the Post Shell acquisition could be impaired in future periods if we are unable to obtain anticipated future construction contracts.

     Interest Income. Interest income decreased $28,000, or 35.0%, from $80,000 for the six months ended September 30, 2001 to $52,000 for the six months ended September 30, 2002, due to a decrease in our average cash balances invested.

     Interest Expense. Interest expense increased $3.0 million, or 90.9%, from $3.3 million for the six months ended September 30, 2001 to $6.3 million for six months ended September 30, 2002. The increase was due to an increase in the average debt balance outstanding, resulting primarily from $4.0 million in additional convertible debt, $22.0 million in promissory notes included in construction payables and $5.9 million in additional loans.

     Gain On the Sale of Real Estate Held for Sale. In July 2001, we sold Fortune House II for $17.2 million and recorded a gain of approximately $3.9 million. During the six months ended September 30, 2001, we sold four condominium units and recorded a net gain of $0.1 million. The last condominium unit was sold in the quarter ended March 31, 2002, therefore there was no real estate sold during the six months ended September 30, 2002.

     Net Loss. Net loss decreased $3.9 million, or 18.4%, from $21.3 million for the six months ended September 30, 2001 to $17.4 million for the six months ended September 30, 2002. Changes in operating results include an increase in interest expense of $3.0 million and increase in data center operations of $1.8 million which were offset by a decrease in construction contract expenses of $1.9 million, decrease in general and administrative expenses of $2.4 million and decrease in start-up costs-data centers of $3.4 million.

Liquidity and Capital Resources

     Cash used in operating activities for the six months ended September 30, 2002 was$11.6 million compared to cash used in operating activities of $20.0 million for the six months ended September 30, 2001. The decrease was primarily the result of decreased losses of approximately $4.3 million and an increase in trade payables of $0.5 million for the six months ended September 30, 2002, as compared to a decrease of $6.1 million for the six months ended September 30, 2001.

     Cash used in investing activities for the six months ended September 30, 2002 was $1.0 million compared to cash used in investing activities of $29.3 million for the six months ended September 30, 2001. The $31.1 million increase in cash flow resulted primarily from decreased purchases of property and equipment primarily related to the NAP of the Americas in the current period offset by a decrease in the sale of real estate.

     Cash provided by financing activities for the six months ended September 30, 2002 was $13.2 million compared to cash provided by financing activities of $49.1 million for the six months ended September 30, 2001, a decrease of $35.9 million. The prior period includes the incurrence of debt and new borrowings of $64.8 million primarily relating to the NAP of the Americas offset by loan payments of $26.3 million. The current period includes $17.0 million from the sale of common stock and common stock warrants offset by payments on construction payables of $3.6 million.

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     Through September 30, 2003, $89.1 million of our liabilities, including notes, construction and other trade payables are or will come due. Additionally $30.7 million of Convertible Subordinated Debentures have been classified as a current liability. We had a net working capital deficit of approximately $116.2 million and stockholder’s deficit of approximately $45.3 million at September 30, 2002 and incurred a net loss of approximately $17.4 million for the six months then ended.

     We expect that we will need an infusion of cash to fund our business operations during the fiscal year ending March 31, 2003. Historically, we have met our liquidity needs primarily through obtaining additional debt financing and the issuance of equity interests. Some of our debt financing was either provided by or guaranteed by a principal executive officer. In prior periods we also successfully shut down or disposed of our remaining non-core operations and implemented a series of expense reductions to reduce our liquidity need. Our current liquidity needs are primarily related to repayment of our construction payables, accrued interest, other payables and debt and to support operations. We have developed a plan to continue operating through the year ended March 31, 2003. Actual funding requirements are dependent upon our ability to meet expectations and will be significantly impacted if some or all of the following assumptions, which underly the expectations are not met:

• restructuring of $21.6 million of construction payables into long term payables or equity or a combination thereof;

• signing and installation of additional customer contracts at NAP of the Americas; and

• no funding under any of our guarantees.

     On November 8, 2002, CRG, LLC entered into an agreement with Cupertino Electric, Inc. to purchase $18.5 million of our debt and all associated rights held by Cupertino. This amount represents the entire construction payable that we owe to Cupertino. On November 11, 2002, we entered into an agreement with CRG that provides us the option, upon the closing of the purchase of our debt by CRG from Cupertino, to repay the entire debt at a discount by either issuing shares of our common stock valued at $0.75 per share or making a cash payment. Our option must be exercised simultaneously with the closing of CRG’s purchase of our debt from Cupertino. If the purchase by CRG of our debt from Cupertino closes on or before November 22, 2002, we may choose to pay $9.5 million in cash or issue 24,666,667 shares. If the purchase by CRG of our debt from Cupertino closes after November 22, 2002 and before December 15, 2002, we may choose to pay $11.0 million in cash or issue 24,666,667 shares.

     Our debt to Cupertino is in default as it matured on October 31, 2002 and it has not yet been repaid. As part of the agreement between CRG and Cupertino, Cupertino has agreed not to enforce any of its rights against us but, in order to preserve its rights, on November 8, 2002 Cupertino filed an action to enforce the rights it had acquired by virtue of a construction lien. Nevertheless, the standstill will be in effect until the closing of the purchase of our debt by CRG and upon the closing of the purchase of our debt to Cupertino by CRG the action filed by Cupertino will be dismissed and the default under the debt cured. If the purchase of our debt by CRG does not occur before December 15, 2002 the standstill and the agreement between CRG and Cupertino will expire, and we will continue to owe the $18.5 million to Cupertino.

     On November 1, 2002 and November 5, 2002, approximately $2.8 million and $1.0 million of our debt owed to Kinetics came due. As a result of not having repaid these amounts, Kinetics may declare a default under our debt agreement. As of November 14, 2002 no default has been declared and we are currently negotiating to reach a settlement with Kinetics.

     Our indebtedness with Ocean Bank of $44.0 million contains a cross-default provision linked to a default under our debt agreements with Cupertino and Kinetics. The current default under our debt with

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Cupertino would allow Ocean Bank to call a default under our credit agreement. However, we have obtained a letter from Ocean Bank waiving any default under our credit agreement with them resulting from a default under our indebtedness to Cupertino or Kinetics. This waiver from Ocean Bank is effective until December 31, 2002

     We have not paid approximately $918,000 of accrued interest due September 30, 2002 on our convertible debentures. As a result, $30.7 million of such convertible debentures are in default and classified as a current liability in our September 30, 2002 balance sheet. As of November 14, 2002 no holder of the debentures requested an acceleration of payment. We have made an offer to all of the holders of the convertible debentures to convert their debentures, including accrued interest as of September 30, 2002, into our common shares at the lower of their current conversion price or a conversion price of $0.75. Approximately $26.4 million of the convertible debentures have stated conversion prices in excess of $0.75 per share. We have not paid approximately $29,000 due under our $803,000 note to a financial institution. Accordingly, this note is also in default.

     We have identified additional potential customers and are actively marketing to them available services at the NAP of the Americas. Our plan is predicated on obtaining additional customer contracts by March 31, 2003, which on an annual basis will generate revenues of approximately $15 million. We have also been pursuing and continue to seek sources of additional debt and equity financing. Our failure to obtain adequate terms from creditors and additional debt or equity financing and meet this plan will result in liquidity problems and require us to curtail, in whole or in part, current operations. There can be no assurances that our plan will be adequately implemented in the time frame contemplated, even if such funds are obtained. Further, any additional equity financing if obtained, will be dilutive to existing stockholders. Our ability to obtain financing may be adversely affected by future declines in the technology sector and general economic conditions. As a result of these matters, substantial doubt exists about our ability to continue as a going concern.

     We intend to allocate our financial resources to activities that are consistent with our strategy of developing and operating TerreNAP Data Centers, including the NAP of the Americas. However, the development of the NAP of the Americas and other TerreNAP Data Centers will require substantial capital resources. As part of our business strategy, we intend to continue to evaluate potential acquisitions, joint ventures and strategic alliances in or with companies that provide services or operations that complement our existing businesses. These acquisitions may also require financing, which may not be available to us on acceptable terms.

Debt and Equity Activity

     In October 2002, one of our subsidiaries entered into a joint venture agreement to develop and operate a HIPPA compliant network access point at the NAP of the Americas in Miami, Florida. Our subsidiary currently owns 10% of the outstanding membership interests of MedNAP L.L.C., the joint venture company. We acquired the 10% interest through a $1.0 million promissory note. We have the option to acquire 80% of the joint venture. Payments are due in equal installments of $55,555.55 together with accrued interest monthly commencing on November 1, 2002. As of November 14, 2002, we have not made the first payment. We have a 30 day period after the payment due date to make the payment. The joint venture company has entered into a services agreement with the NAP of the Americas.

     In October 2002, we received a $3.0 million unsecured, 90-day loan at 10% interest.

     In April 2002, we entered into a Put and Warrant purchase agreement with TD Global Finance. On July 19, 2002, we exercised our right to require TD Global Finance to purchase 17,648,824 shares of our common shares for $0.58 per share for a total of $10.2 million. The closing price of our common stock on July 19, 2002, the day that we exercised the option, was $0.70. We also issued three call warrants that grant TD Global Finance the right to purchase 3,529,765 shares of our common stock. Each call warrant will expire on January 18, 2003. The warrants may be exercised in any order. The strike price at which the call warrants are exercisable and the number of shares for which they are exercisable are as follows:

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• $0.67 for 1,176,589 shares;

• $0.77 for 1,176,588 shares; and

• $0.57 for 1,176,588 shares.

     We received the $10.2 million in cash in August 2002. We used the payment for the shares and will use the proceeds from any exercise of the warrants for general corporate purposes.

     In June 2002, we entered into an exclusive agreement with the Comunidad Autonoma de Madrid to develop and operate carrier-neutral network access points (NAPs) in Spain. As part of that agreement the parties formed NAP de las Americas — Madrid S.A. for the purpose of owning and operating carrier-neutral Tier-1 NAPs in Spain and of which we own 10%. We contributed approximately $250,000 towards the capitalization of NAP de las Americas — Madrid S.A. to obtain the 10% interest. The shareholders in this new company are the Instituto Madrileno de Desarrollo — IMADE, the Camara Oficial de Comercio e Industria de Madrid, Red Electrica Telecomunicaciones, S.A., Telvent Desarrollos S.A., a subsidiary of Abengoa S.A., and Centro de Transportes de Coslada, S.A. In June 2002, the NAP de las Americas — Madrid purchased 5 million shares of our common stock at $1.00 per share. We also have the option to purchase up to another 30% of the NAP de las Americas — Madrid shares owned by the Comunidad and the Camara at the initial capitalization value, plus LIBOR. Under the provisions of the agreement the number of shares sold will be adjusted if we during the next 12 months issue common stock at less than $1.00 per share. As a result of the sale of common shares under the Put and Warrant Agreement, we are obligated to issue an additional 3.6 million shares to NAP de las Americas-Madrid S.A. As of November 14, 2002 these shares have not yet been issued.

     In May 2002, we received a $1.5 million short-term loan at 10% interest from our Chief Executive Officer. Also in May 2002, two of our directors and some of our shareholders paid $3.6 million in cash and converted $3.9 million in short term promissory notes into 10,000,000 shares.

     On September 5, 2001, we closed on a $48.0 million credit facility with a bank. During August 2002, we reached an agreement to modify the credit facility. Under the modified terms, the initial maturity date has been extended to September 2003. We have the option to exercise two six-month extension periods each at a cost of 0.5% of the principal balance outstanding together with a principal repayment of $2.5 million. During each extension period, a $250,000 monthly principal repayment plus interest is due. At closing, the total amount of the credit facility was disbursed except for approximately $6.6 million that was held as an interest reserve and has been drawn down on a monthly basis to make interest payments. The modified terms reduced the annual interest rate to 7.50% and we commenced making monthly interest payments in July 2002. All other material provisions of the credit facility have remained unchanged. To obtain the original loan, we paid a $720,000 commitment fee. The proceeds of the credit facility were primarily used to:

• repay a $10 million short-term loan from Manuel D. Medina, our Chief Executive Officer, the proceeds of which we had used to fund the build out of the NAP of the Americas (he, in turn, used the $10 million to repay a personal $10 million short-term loan from the bank);

• repay $3.5 million of debt that we owed to the bank under a line of credit personally guaranteed by Mr. Medina;

• pay $1.2 million in loan costs related to the $48 million credit facility (including the $720,000 commitment fee); and

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• fund the NAP of Americas build out costs.

     The credit facility is secured by all of our assets and all of our stock in certain of our subsidiaries. The credit facility allows for up to a $25.0 million junior lien position on the assets of our NAP of the Americas, Inc. subsidiary. Mr. Medina has personally guaranteed the $48 million credit facility.

     In addition to his personal guarantee of the credit facility, and in order for us to obtain the facility, the bank further required that Mr. Medina, prior to the bank disbursing funds under the credit facility (i) provide a $5.0 million certificate of deposit to the bank as collateral on certain personal loans that Mr. Medina has with the bank and (ii) commit to accelerate the maturity date of those personal loans to December 31, 2001. Subsequent to September 2001, Mr. Medina and the bank changed the maturity date on the personal loans, first to December 31, 2001 and later to July 1, 2002. Mr. Medina also agreed to subordinate debt that we owe to Mr. Medina in the event of our default under the credit facility. Mr. Medina has repaid part of those personal loans to the bank through liquidation of the $5.0 million certificate of deposit in January 2002 leaving an outstanding principal balance of approximately $5.4 million and he has exercised his right under such personal loan agreements to extend their maturity date from July 1, 2002 to December 31, 2002.

     On September 5, 2001, in consideration of Mr. Medina agreeing to repay his indebtedness to the bank earlier than otherwise required, pledging the certificate of deposit to the bank and personally guaranteeing the $48 million credit facility and approximately $21 million of construction payables, we entered into an amended and restated employment agreement with him. Under the terms of the amended and restated employment agreement we will indemnify Mr. Medina from any personal liability related to his guarantees of any of our debt, use commercially reasonable efforts to relieve Mr. Medina of all his guarantees of our debt, provide up to $6.5 million of cash collateral to the bank should Mr. Medina be unable to repay the personal loans when due and provide a non interest-bearing $5.0 million loan to Mr. Medina for as long as his guarantees of our debt exist. If Mr. Medina’s note to us becomes in default, we have the right to withhold payments of all amounts payable by us to Mr. Medina, the aggregate of which is approximately $3.0 million as of September 30, 2002. The note is shown as an adjustment to equity on our balance sheet. Additionally, as long as Mr. Medina’s guarantees of our debt exist, we have agreed to nominate Mr. Medina to our Board of Directors and not remove Mr. Medina, unless for good cause, or remove any of our officers without Mr. Medina’s consent. There was no change in the amount or timing of Mr. Medina’s cash or non-cash compensation in connection with these agreements, nor did Mr. Medina receive any guarantee fee or other fees in connection with his guaranteeing our indebtedness. We do not anticipate funding the $6.5 million of cash collateral.

     The $48 million credit facility and the loan to Mr. Medina have been approved by our Board of Directors.

     In July 2002, the terms of Mr. Medina’s $5.0 million non-interest bearing note were amended. As amended, the note has a maturity date of December 5, 2004 and bears interest subsequent to September 5, 2002 at approximately 2%, the applicable federal rate. Interest is due in bi-annual installments. On a quarterly basis, we will review the collectability of this note. As of November 14, 2002, we owed Mr. Medina approximately $3.0 million including $1,375,000 of our convertible debt held by him. In addition to our right to withhold payment to Mr. Medina if his note is in default, he has agreed that we have the right to withhold repayments of our convertible debt held by him so long as his note is outstanding.

     Our debt financing as of September 30, 2002 primarily includes the following:

• $26.4 million in principal amount of subordinated convertible debt. Interest accrues at 13%, and is payable quarterly beginning March 31, 2001. The debt matures on December 31, 2005 and is convertible into shares of our common stock at $1.87 weighted average conversion price. We are permitted to prepay the debentures, which will entitle holders to warrants or a premium over their outstanding principal declining from 105% in 2001 at the rate of 1% per year.

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• $4.3 million in principal amount of subordinated convertible debt. Interest accrues at 13.125%, and is payable quarterly beginning December 31, 2001. The debt matures on August 30, 2004 and is convertible into shares of our common stock at a $0.66 weighted average conversion price We are permitted to prepay the debentures.

• $44.0 million loan from Ocean Bank referred to above.

• $3.7 million under various capital lease arrangements, with various terms, secured by equipment.

• $0.8 million under a loan from a commercial bank secured by certain assets and personal guarantees of a director and certain of our shareholders. The note was modified and extended in August 2002. Under the terms of the modified note, the maturity date has been extended to December 2002 and interest payments will be made monthly with remaining amount due at maturity. The note to the financial institution was personally guaranteed by a former officer of a company which we acquired during 2000. In connection with that acquisition, we agreed to obtain the release of the former officer's personal guarantee and collateral. The financial institution, the former officer and we entered into an agreement pursuant to which the former officer's personal guarantee of the note was released. As part of the transaction, $146,832 which had been pledged to the financial institution by the former officer was applied to the loan balance. In addition, we paid the former officer $25,000, forgave $25,000 of a loan to the former officer and issued 400,000 shares of our common stock to the former officer. In addition, a $10,000 obligation of the former officer to us was modified to provide that any proceeds received by the former officer from the sale of the 400,000 shares shall be applied to the obligation and the obligation shall be repaid no later than August 2003. We have agreed to register the shares under the Securities Act. We have not paid $29,000 in principal and interest due October 31, 2002 related to this note payable. As a result of not having paid this amount, the financial institution may declare a default under the note.

• $4.6 million of short term financing borrowed from related parties, including certain directors, shareholders and members of our executive management team.

• $1.4 million of other short-term debt.

Guarantees and Commitments

     In addition to our operating commitments, we have made certain guarantees. The Technology Center of the Americas, LLC, (“TECOTA”) where the NAP of the Americas is located, obtained $48.0 million of equity and $61.0 million of construction financing to fund the construction of TECOTA during November 2000. During September 2001, our guaranty of the construction financing was reduced from approximately $60.6 million to $5.5 million. As of September 30, 2002, TECOTA had accounts payable and accrued expenses of $1.6 million and debt of $35.1 million. We do not expect to fund any amounts under our guarantee.

     We lease space for our operations, office equipment and furniture under non-cancelable operating leases. Some equipment is also leased under a capital lease, which are included in leasehold improvements, furniture and equipment. The following represents the minimum future operating and capital lease payments for these commitments, as well as the combined aggregate maturities for the following obligations for each of the twelve months ended September 30, are as follows:

	Capital lease		Operating		Notes		Convertible
	obligations		leases		payable(1)		debt		Total
2003	$	1,972,052	$	6,029,994	$	50,578,180		—	$	58,580,226
2004		1,215,501		6,015,910		48,000		4,250,000		11,529,411
2005		492,302		5,796,485		48,000				6,336,787

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	Capital lease		Operating		Notes		Convertible
	obligations		leases		payable(1)		debt		Total
2006		10,526		5,585,763		48,000		26,405,000		32,049,289
2007		10,722		5,428,186		20,566		—		5,459,474
Thereafter		—		73,080,144		—		—		73,080,144
	$	3,701,103	$	101,936,482	$	50,742,746	$	30,655,000	$	187,035,331

(1) Included in the 2003 notes payable is $44.0 million credit facility with Ocean Bank. Although this facility matures during September 2003, we have the option to exercise two six-month extension periods each at a cost of 0.5% of the principal balance outstanding and a principal repayment of $2.5 million. During each extension period, a $250,000 monthly principal repayment plus interest is due.

New Accounting Pronouncements

     As of April 1, 2002, we adopted Statement of Financial Accounting Standards No. 141 (FASB 141), Business Combinations, and Statement of Financial Accounting Standards No. 142 (FASB 142), Goodwill and Other Intangible Assets. FASB 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. FASB 142 changes the accounting for goodwill from an amortization method to an impairment-only approach.

     As of April 1, 2002, we adopted Statement of Financial Accounting Standards No. 144 (FASB 144), Accounting for the Impairment or Disposal of Long-Lived Assets. FASB 144 supercedes FASB 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of business. FASB 144 retains the requirements of FASB 121 for recognition and measurement of an impairment loss on long-lived assets, and establishes a single accounting model for all long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. The adoption of FASB 143 and 144 has had no impact on our September 30, 2002 financial results.

     In April 2002, the Financial Accounting Standards Board (FASB) approved SFAS 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections. In addition to rescinding SFAS 4, 44, and 64 and amending SFAS 13, SFAS 145 establishes a financial reporting standard for classification of extinguishment of debt in the financial statements in accordance with APB 30. SFAS 145 will be effective for our fiscal year ended March 31, 2004. Management does not expect the adoption of SFAS 145 to have a material effect on our financial position or results of our operations.

     In June 2002, the FASB approved SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS 146 will be effective for exit or disposal activities initiated after December 31, 2002, with early application encouraged. Management does not expect the adoption of SFAS 146 to have a material effect on our financial position or results of our operations.

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Risk Factors

     You should carefully consider the risks described below and the other information in this annual report. Our business, financial condition or operating results could be seriously harmed if any of these risks materialize. The trading price of our common stock may also decline due to any of these risks.

     The deployment of our TerreNAP(SM) Data Center strategy will require us to expend substantial resources for leases, 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 will experience losses for more than one year from the time they are opened. 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.

     To date, we have funded our operations through private debt and equity offerings. However, because we have not yet achieved positive cash flow from our operations, we will continue to require capital support until we are cash flow positive.

     Our consolidated financial statements as of fiscal year-end March 31, 2002 have been prepared on the assumption that we will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. Our independent auditors have issued a report dated July 12, 2002 stating that our recurring operating losses, negative cash flows, and liquidity deficit, combined with our current lack of credit facilities, raise substantial doubt as to our ability to continue as a going concern. Investors in our securities should review carefully our financial statements and the report of our independent accountants thereon. Our ability to continue as a going concern is dependent on several factors, including our ability to raise additional debt and capital. There can be no assurance that any financing will be available through bank borrowings, debt or equity issuances, vendor lines of credit, or otherwise, on acceptable terms or at all. If future financing requirements are satisfied through the issuance of equity securities, investors may experience significant dilution both in terms of their percentage interest in the Company and the net book value per share of common stock. While we are actively seeking strategic solutions to our funding issues, there can be no assurance that we will be able to continue as a going concern.

     The nature of our operations changed subsequent to our April 28, 2000 merger with AmTec, 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 2001. 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 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.

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     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 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 implementation of proposed projects. However, there is no assurance that we will have the funds necessary to discharge our obligations associated with operating the NAP of the Americas or developing and operating other TerreNAP^SM Data Centers.

     The expansion of our operations through the opening of additional TerreNAP^SM Data Centers in emerging markets is part of our 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 continue leveraging 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.

     We expect to continue 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 Center, 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.

     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

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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 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.

     The market for Internet infrastructure services is extremely competitive and subject to rapid technological change. Many companies have announced that they will begin to provide or plan to expand their service offerings to compete with our services. We expect to encounter increased competition in the future due to increased consolidation and the development of strategic alliances in the industry. In addition, we will compete with foreign service providers as we expand internationally and as these service providers increasingly compete in the United States market. The principal competitive factors in our market include:

• ability to deliver services when requested by the customer;

• internet system engineering and other professional services expertise;

• customer service;

• network capability, reliability, quality of service and scalability;

• variety of managed services offered;

• access to network resources, including circuits, equipment and interconnection capacity to other networks;

• broad geographic presence;

• price;

• ability to maintain and expand distribution channels;

• brand name recognition;

• timing of introductions of new services;

• physical and network security;

• financial resources; and

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• customer base.

     Our current and potential competitors include: providers of data center services; global, regional and local telecommunications companies and Regional Bell Operating Companies; and information technology outsourcing firms. Some of our competitors, particularly the global telecommunications companies that have begun, or intend to begin, providing data center services, have substantially greater resources, more customers, longer operating histories, greater name recognition, and may have more established relationships in the industry than we do. As a result, these competitors may be able to develop and expand their Internet infrastructure services faster, devote greater resources to the marketing and sale of their products and adopt more aggressive pricing policies than we can. In addition, these competitors have entered and will likely continue to enter into business relationships to provide additional services that compete with the services we provide.

     We believe our market is likely to consolidate in the near future, which could result in increased price and other competition. Some of our competitors may be able to provide customers with additional benefits relating to the customer’s Internet system and network management solutions, including reduced local and long distance communications costs, which could reduce the overall costs of their services relative to ours. We may not be able to offset the effects of any price reductions.

     As we expand our operations in markets outside the United States, we will also encounter new competitors and competitive environments. Our foreign competitors may enjoy a government-sponsored monopoly on telecommunications services essential to our business, and will generally have a better understanding of their local industry and longer working relationships with local infrastructure providers.

     We believe that we have certain competitive advantages but there are few barriers to entry. We are recognized by industry members as one of five owners/operators of Tier-1 NAP in the US. None of the other four Tier-1 NAPs offer Class A1+ space immediately adjacent to the peering point as well as managed services. In addition, we are the only carrier-neutral NAP. Nevertheless, there are few substantial barriers to entry to the colocation and managed services market, and we expect to face additional competition from existing competitors and new market entrants in the future.

     We are dependent on key personnel. We are highly dependent on the services of Manuel D. Medina, our Chairman. The loss of Mr. Medina could materially harm our business. Our potential growth and expansion and the merger and integration of separate businesses, are expected to place increased demands on our management skills and resources. We cannot assure you that we will be able to retain and attract skilled and experienced management. The failure to attract and retain personnel could materially harm our business and impair the price of our stock.

     If our shares are delisted from the American Stock Exchange, we may apply to have our shares quoted on Nasdaq’s Bulletin Board or in the “pink sheets’ maintained by the National Quotation Bureau, Inc. The Bulletin Board and the “pink sheets” are generally considered to be less efficient markets than the American Stock Exchange on which the shares are currently traded. In addition, if our shares are no longer listed on the American Stock Exchange or another national securities exchange in the United States, our shares may be subject to the “penny stock” regulations. If our shares are delisted from the American Stock Exchange, our stockholders could find it difficult to sell our stock and the price of our stock could be adversely affected.

     You should not expect to receive dividends on our common stock. We have not paid dividends on our common stock to date and have no plans for paying dividends on the common stock in the foreseeable future. We have certain obligations to pay dividends in kind, which may be paid, at our option, in common stock to holders of the Series G and Series H preferred shares. Except for those dividends on the shares of issued and outstanding preferred stock, and cash or in-kind dividends that we may pay on other preferred stock that may be issued in the future that require dividends, we intend to retain any earnings to pay for the

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expansion of our business. In addition, covenants in our financing agreements prohibit the payment of dividends.

     We could pay additional taxes because our operations are subject to various foreign taxes. We structure our operations based on assumptions about various tax laws, U.S. and international tax treaty developments, international currency exchange and capital repatriation laws and other relevant laws of a variety of non-U.S. jurisdictions. Taxing or other authorities might not reach the same conclusions we reach. We could suffer adverse tax and other financial consequences if our assumptions about these matters are incorrect or the relevant laws are changed or modified.

     Distributions and other payments from our subsidiaries and affiliates may be subject to foreign taxes, reducing our earnings. Distributions of earnings and other payments, including interest, we receive from our subsidiaries and affiliates may be subject to withholding taxes imposed by the jurisdictions in which these entities are formed or operating. These taxes would reduce the amount of after-tax cash we would receive from these entities.

     Our customer service could suffer if we are unable to obtain satisfactory services from local communications providers, which could adversely affect our ability to compete. We depend on local carriers to provide various communications services to us and to our customers. We have from time to time had delays in receiving these communications services. We may not be able to obtain these services on the scale and within the time required by us at an affordable cost, or at all. If adequate services are not provided, customer service could suffer as could our competitive position and financial results. Further these service providers could become competitors in the future.

     Recent terrorist activity in the United States and the military action to counter terrorism could adversely impact our business. The September 11, 2001 terrorist attacks in the United States, the ensuing declaration of war on terrorism and the continued threat of terrorist activity and other acts of war or hostility appear to be having an adverse effect on business, financial and general economic conditions in the U.S. These effects may, in turn, result in increased costs due to the need to provide enhanced security, which would have a material adverse effect on our business and results of operations. These circumstances may also adversely affect our ability to attract and retain customers, our ability to raise capital and the operation and maintenance of our NAP facilities.

     Our business could be harmed by prolonged electrical power outages or shortages, or increased costs of energy. Our NAP facilities are susceptible to regional costs of power, electrical power shortages and planned or unplanned power outages caused by these shortages. A power shortage may result in an increase of the cost of energy, which we may not be able to pass on to our customers. We attempt to limit exposure to system downtime by using backup generators and power supplies. Power outages, which last beyond our backup and alternative power arrangements, could harm our customers and our business.

ITEM  3.   Quantitative and Qualitative Disclosures About Market Risk.

     We have not entered into any financial instruments for trading or hedging purposes.

     Our carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses is a reasonable approximation of their fair value.

     Our exposure to market risk resulting from changes in interest rates relates primarily to our debt. An immediate 10% increase or decrease in current interest rates would furthermore not have a material impact to our debt obligations due to the fixed nature of our debt obligations. The fair market value of our long-term fixed interest rate debt is subject to interest rate risk. Generally, the fair market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. These interest rate changes

37

may affect the fair market value of the fixed interest rate debt but does not impact our earnings or cash flows.

     To date, all of our recognized revenue has been denominated in U.S. dollars, generated mostly from customers in the U.S., and our exposure to foreign currency exchange rate fluctuations has been minimal. We expect that future revenues may be derived from customers outside of the U.S. and may be denominated in foreign currency. As a result, our operating results or cash flows may be impacted due to currency fluctuations relative to the U.S. dollar.

     Furthermore, to the extent we engage in international sales that are denominated in U.S. dollars, an increase in the value of the U.S. dollar relative to foreign currencies could make our services less competitive in the international markets. Although we will continue to monitor our exposure to currency fluctuations, and when appropriate, may use financial hedging techniques in the future to minimize the effect of these fluctuations, we cannot assure you that exchange rate fluctuations will not adversely affect our financial results in the future.

     Some of our operating costs are subject to price fluctuations caused by the volatility of underlying commodity prices. The commodity most likely to have an impact on our results of operations in the event of significant price change is electricity. We are closely monitoring the cost of electricity. To the extent that electricity costs continue to rise, we are investigating opportunities to pass these additional power costs onto our customers that utilize this power. We do not employ forward contracts or other financial instruments to hedge commodity price risk.

ITEM  4.   Controls and Procedures.

     a) Our principal executive and financial officers have evaluated the effectiveness of the Company’s disclosure controls and procedures as of a date within 90 days prior to the filing of this report (the “Evaluation Date”). They have concluded that these disclosure controls provide reasonable assurance that the Company can collect, process and disclose, within the time periods specified in the Commission’s rules and forms, the information required to be disclosed in its periodic Exchange Act reports.

     b) There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect its internal controls subsequent to the date of their most recent evaluation.

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PART II. OTHER INFORMATION

ITEM  1.   Legal Proceedings.

     On November 8, 2002, Cupertino Electric, Inc. filed a complaint against Terremark Worldwide, Inc., Terremark Technology Contractors, Inc. and Technology Center of the Americas, Inc. in the Miami-Dade County Circuit Court Eleventh Judicial Circuit. Cupertino Electric asserted a claim of breach of contract and seeks to foreclose on a construction lien each in an amount of approximately $15 million together with interest. In connection with an agreement between Cupertino Electric and CRG LLC, Cupertino Electric has agreed not to enforce any of its rights against the named defendants pending the closing of the agreement. Upon closing, Cupertino Electric will dismiss the action.

ITEM  3.   Defaults Upon Senior Securities.

     We have 13% Subordinated Convertible Debentures and 13.125% Subordinated Convertible Debentures. We did not pay the regularly scheduled interest payments of $776,000 and $142,000 due September 30, 2002 on the 13% Subordinated Convertible Debentures and 13.125% Subordinated Convertible Debentures, respectively. Under the terms of the debentures, an Event of Default occurred on October 10, 2002. The $30.7 million outstanding principal balance of the debentures has consequently been classified as a current liability in our September 30, 2002 balance sheet. As of November 14, 2002, no holder of the debentures has requested an acceleration of payment. The debentures have an average conversion price of $1.87 and $0.66 for the Subordinated Convertible Debentures issued at 13% and 13.125%, respectively. We have made an offer to all of the holders of the debentures to convert their debentures into our common shares at a conversion price of $0.75.

ITEM  6.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

     (a)  1 and 2. The financial statements listed in the accompanying Table of Contents to Consolidated Financial Statements and Financial Statement Schedule on page F-1 herein are filed as part of this report.

     3.     The exhibits listed in the Exhibit Index are filed with or incorporated by reference as part of this report.

     (b)  No reports were filed on Form 8-K during the second quarter of the fiscal year ended March 31, 2003.

     (c)  The following exhibits, which are furnished with this Quarterly Report or incorporated herein by reference, are filed as part of this Quarterly Report.

Exhibit
Number	Exhibit Description
3.3	Amended and Restated Bylaws of the Company
99.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14th day of November 2002.

TERREMARK WORLDWIDE, INC.

By: /s/ MANUEL D. MEDINA
Manuel D. Medina, Chairman of the Board, President
and Chief Executive Officer

By: /s/ JOSÉ A. SEGRERA
José A. Segrera, Chief Financial Officer

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CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

     I, Manuel D. Medina, certify that:

     1.     I have reviewed this quarterly report on Form 10-Q of Terremark Worldwide, Inc. (the “Registrant”);

     2.     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

     3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report;

     4.     The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

           (a)     designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

           (b)     evaluated the effectiveness of the Registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

           (c)     presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

     5.     The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent function):

           (a)     all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant’s ability to record, process, summarize and report financial data and have identified for the Registrant’s auditors any material weaknesses in internal controls; and

           (b)     any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls; and

     6.     The Registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

/s/ MANUEL D. MEDINA
Manuel D. Medina
Chairman, President and
Chief Executive Officer,

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CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

     I, Jose A. Segrera, certify that:

     1.     I have reviewed this quarterly report on Form 10-Q of Terremark Worldwide, Inc. (the “Registrant”);

     2.     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

     3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report;

     4.     The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

           (a)     designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

           (b)     evaluated the effectiveness of the Registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

           (c)     presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

     5.     The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent function):

          (a)     all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant’s ability to record, process, summarize and report financial data and have identified for the Registrant’s auditors any material weaknesses in internal controls; and

          (b)     any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls; and

     6.     The Registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

/s/ JOSÉ A. SEGRERA
Jose A. Segrera
Chief Financial Officer

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