Terremark Worldwide Inc.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act. Yes þ No o

The registrant had 311,059,315 shares of common stock, $0.001 par value, outstanding as of January 31, 2004.

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

Terremark Worldwide, Inc. (together with its subsidiaries, the “Company”) operates facilities located in Florida, California and Sao Paulo from which the Company assist users of the Internet and large communications networks in communicating with other users and networks. The Company’s primary facility is the NAP of the Americas located in Miami, Florida, a carrier-neutral Tier-1 network access point (the “NAP”) in Miami, Florida. The NAP provides exchange point, colocation and managed services to carriers, Internet service providers, network service providers, government entities, multinational enterprises and other end users. The Company’s strategy is to leverage its concentration of connectivity and carrier-neutral status to sell services to customers within and outside of the Company’s TerreNAP Data Centers.

Prior to April 2000, the Company was engaged in the development, sales, leasing, management and financing of retail, high-rise office buildings, mixed-use projects, condominiums, hotels and government-assisted housing. The Company was also involved in a number of ancillary businesses that complemented its development operations. Specifically, the Company engaged in offering financial services, property management, construction management, condominium hotel management, residential and commercial leasing brokerage, and advisory services. By March 31, 2002, the Company had exited non-core real estate activities, real estate development, property management, financing and the ancillary businesses that complimented these real-estate development operations. The Company’s remaining real estate activities include technology construction work and management of the property where the NAP of the Americas is located.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liabilities and commitments in the normal course of business. From April 28, 2000 through December 31, 2003, the Company has incurred net operating losses of approximately $219.7 million, including approximately $82.6 million of losses related to discontinued operations. The Company’s cash flows from operations for the nine months ended December 31, 2003 and 2002 were negative and its working capital deficit was approximately $17.9 million and $39.0 million as of December 31, 2003 and March 31, 2003, respectively. Due to recurring losses from operations and the lack of committed sources of additional debt or equity to support working capital deficits, substantial doubt exists about the Company’s ability to continue as a going concern.

Historically, the Company has met its liquidity needs primarily through obtaining additional debt financing and the issuance of equity interests. Some of the debt financing was either provided by or guaranteed by Manuel D. Medina, the Company’s Chief Executive Officer and Chairman of the Board of Directors. In prior periods, the Company also shut down or disposed of non-core operations and implemented expense reductions to reduce the Company’s liquidity needs.

The Company’s primary sources of liquidity are cash and cash equivalents amounting to approximately $2.1 million as of January 31, 2004.

Based on customer contracts signed as of January 31, 2004, the Company’s monthly cash deficit from operations is approximately $1.0 million. In order to eliminate this current monthly cash deficit from operations, the new monthly revenues required range from $1.6 million to $2.6 million. This range of new revenue depends on the mix of the services sold and their corresponding margin.

The Company expects to increase its revenues based on existing contracts, including those with the U.S. Federal government and enterprises, and expected future contracts from potential customers currently in its sales pipeline. The Company has identified additional potential customers, including the Federal,

state and local governments, and is actively offering available services to them. However, projected revenues depend on several factors, some of which are beyond the Company’s control, including the rate at which services are sold to the government sector and the commercial sector, the Company’s ability to retain its customer base, the willingness and timing of potential customers outsourcing the housing and management of their technology infrastructure to the Company, the reliability and cost-effectiveness of the Company’s services and its ability to market services.

On November 4, 2003, the Company entered into an agreement to lease an additional 149,184 square feet of space in the third floor of TECOTA, the property in which the NAP of the Americas is located, and extend the Company’s existing lease in the second floor of the same property to co-terminate with the third floor lease on May 31, 2025. This additional space allows the Company to customize build-outs for large customers. Under the terms of the lease agreement, monthly base rent payments for the third floor space of approximately $200,000 will commence in April 2005. Effective June 1, 2006 and 2009, annual base rent for the third floor will increase to approximately $3.0 million and $3.5 million, respectively, with annual 2.5% increases thereafter. The Company is currently building out a portion of the third floor. Based on existing and anticipated future contracts from potential customers currently in the sales pipeline, the Company will require approximately $3 to $4 million in additional debt or equity financing to complete the build out of the portion of the third floor necessary to service these customers. The build out has commenced and it is anticipated that it will be completed in 2004. If the Company is unsuccessful in obtaining additional debt or equity financing, it plans on negotiating payment terms with the contractors for the build out. These payment terms may restrict the Company’s ability to engage in some activities.

The Company’s current liabilities as of December 31, 2003 are approximately $23.2 million, including approximately $14.1 million in debt and capital lease obligations maturing within one year and $5.9 million in accounts payable and accrued expenses. Currently, the Company does not have the cash to meet these obligations. The Company further anticipates that revenues will not be sufficient to make principal payments on debt maturing within one year.

In the past the Company has been able to work with lenders and vendors to continue to extend the terms of the debt and accounts payable. The Company intends to continue these efforts. The Company further plans to fund the business by increasing revenues and cash collections from customers and by selling additional debt or equity securities. Financing may not be available. Further, any additional equity financing may be dilutive to existing shareholders. If the Company is unsuccessful in obtaining additional financing, extending the terms of the Company’s maturing debt or negotiating payment terms with creditors, the Company will curtail activities. In addition, some of the creditors may pursue legal rights against the Company. The Company also does not expect to fund any amounts under the Company’s guaranties.

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 December 31, 2003 may not be indicative of the results that may be expected for the year ending March 31, 2004. Amounts as of March 31, 2003, 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, 2003.

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.

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

One customer accounted for approximately 11% of data center-services revenues for the nine months ended December 31, 2003. Two customers accounted for approximately 13% and 10% of data center-services revenues for the nine months ended December 31, 2002, respectively. One customer accounted for approximately 13% of data center-services revenues for the three months ended December 31, 2003. Two customers accounted for approximately 12% and 10% in data center-services revenues for the three months ended December 31, 2002, respectively.

The Company uses the intrinsic value-based method to account for its employee stock-based compensation plans. Under this method, compensation expense is based on the difference, if any, on the date of grant, between the fair value of the Company’s shares and the exercise price of the option.

The Company has adopted the disclosure requirements of SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — An Amendment of SFAS No. 123”. The following table presents what the net loss and net loss per share would have been had the Company adopted SFAS No. 123 (in thousands, except per share data):

The Company’s fair value calculations for employee grants were made using the Black-Scholes option pricing model with the following weighted average assumptions:

When the Company issues debt or equity which is convertible into common stock at a discount from the common stock market price at the date the debt is issued, the Company recognizes a beneficial conversion feature for the difference between the closing price and the conversion price multiplied by the number of shares issuable upon conversion. The beneficial conversion feature is presented as a discount to the related debt or equity, with an offsetting amount increasing additional paid in capital. The discount is amortized as additional interest expense or dividend from the date the instrument is issued to the date it first becomes convertible.

In December 2003, the Securities and Exchange Commission, (“SEC”), issued Staff Accounting Bulletin No. 104, (“SAB 104”), Revenue Recognition. SAB 104 updates portions of existing interpretative guidance in order to make this consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. The adoption of SAB 104 did not have a material impact on the Company’s consolidated financial statements.

In May 2003, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement requires that an issuer classify financial instruments which are within its scope as a liability. Many of those instruments were classified as equity under previous guidance. Most of the guidance in SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The impact of the Company’s adoption of SFAS 150 on its consolidated financial statements was to present Series H redeemable preferred stock as a liability.

In March 2003, the FASB reached a consensus on Emerging Issues Task Force (EITF) Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables”. The consensus provides guidance on the accounting for multiple element revenue arrangements. It also provided guidance on how to separate multiple element revenue arrangements into its separate units of accounting and how to measure and allocate the arrangement’s total consideration to each unit. The effective date of EITF 00-21 is for revenue arrangements entered into in fiscal periods (interim or annual) beginning after June 15, 2003. The Company’s adoption of EITF 00-21 as of July 1, 2003 has not impacted its consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51.” This interpretation clarifies consolidation requirements for variable interest entities. It establishes additional factors beyond ownership of a majority voting interest to indicate that a company has a controlling financial interest in an entity (or a relationship sufficiently similar to a controlling financial interest that it requires consolidation). This interpretation applies immediately to variable interest entities created or obtained after January 31, 2003

and must be retroactively applied to holdings in variable interest entities acquired before February 1, 2003 in interim and annual financial statements issued for periods ending after December 15, 2003. NAP de las Americas-Madrid S.A. is a variable interest entity but the Company’s current relationship indicates that it does not require consolidation. The Company’s maximum related exposure to loss is approximately $500,000 at December 31, 2003. Management does not expect the adoption of FIN 46 to have a significant impact on the Company’s consolidated financial position or result of operations.

In April 2002, the 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 is effective for the Company’s fiscal year ended March 31, 2004. Management does not expect the adoption of SFAS 145 to have a material impact on the Company’s financial position. However, SFAS 145 had an impact on the presentation of the results of operations for the nine months ended December 31, 2003 (see Note 6).

On November 10, 2003, a developer agreed to pay the Company a $3.8 million non-refundable fee to develop a TerreNAP Center in Australia. The developer paid the Company $500,000 upon execution of the agreement and the remaining balance of $3.3 million on December 10, 2003. On February 11, 2004, the developer notified the Company it did not wish to proceed with negotiations regarding the construction of a TerraNAP Center in Australia.

Connectivity solutions include procurement and installation of equipment and procurement of connectivity. Revenues for connectivity solutions are not recognized until the complete solution is accepted by the customer.

On September 5, 2001, the Company closed on a $48 million credit facility from Ocean Bank. The proceeds of the original credit facility were used to:


	•	repay a $10 million short-term loan from Mr. Medina, the proceeds of which the Company had used to fund the build out of the NAP of the Americas (Mr. Medina, in turn, used the $10 million to repay a personal $10 million short-term loan from Ocean Bank);

	•	repay $3.5 million of debt that the Company owed to Ocean 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 $720,000 commitment fee); and

	•	fund the NAP of the Americas build out costs.

On April 30, 2003, Ocean Bank revised its loan with the Company by converting, at $.75 per common share, $15.0 million of the outstanding principal balance under the credit facility into 20 million shares of the Company’s common stock with an approximate $9.6 million market value and extending the term of the remaining $29.0 million until April 30, 2006. The resulting $5.4 million debt restructuring gain was deferred and recorded in notes payable and is being amortized as reductions in interest expense over the life of the remaining debt. Concurrent with this transaction, the Company paid all past due interest as of March 31, 2003, plus accrued interest through April 28, 2003 totaling approximately $1.6 million and prepaid interest of approximately $900,000. Under the new terms, interest is payable quarterly at an annual stated rate of 5.25% for the first twelve months and 7.5% thereafter.

The loan is secured by all of the Company’s assets and allows for up to a $25 million junior lien position on the assets of its NAP of the Americas, Inc. subsidiary. Mr. Medina has personally guaranteed the loan with Ocean Bank.

In addition to Mr. Medina’s personal guarantee of the loan, and in order to obtain the credit facility, the bank further required Mr. Medina, prior to the bank disbursing funds under the credit facility, to (i) provide a $5.0 million certificate of deposit to the bank as collateral for certain personal loans that Mr. Medina has with the bank and (ii) commit to accelerate the maturity date of those personal loans. In the event of the Company’s default under the credit facility Mr. Medina also agreed to subordinate any debt that the Company owed to Mr. Medina until the credit facility is repaid in full. Mr. Medina has repaid part of his personal loans to the bank, leaving an outstanding principal balance of approximately $4.6 million on December 31, 2003. On February 11, 2004, Mr. Medina extended one loan with a principal amount of approximately $3.3 million to February 11, 2005 and made an interest payment of $63,500. He anticipates extending the maturity date on the other loan with a principal amount of approximately $1.3 million by the end of February 2004.

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. Mr. Medina and the Company have agreed that the Company has the right to withhold payment to Mr. Medina of the $1,375,000 in convertible debt held by him until the note to the Company is repaid.

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 were approved by the Board of Directors.

Mr. Medina’s note to the Company has a maturity date of September 30, 2004 and bears interest at 2%, the applicable federal rate. Interest is due in bi-annual installments. The Company reviews the collectibility of this note on a quarterly basis.

Construction payables at December 31, 2003 relate to construction of the Company’s colocation facility in Santa Clara, California and technology construction work, including the build out of the third floor at TECOTA.

On November 8, 2002, CRG, LLC (“CRG”), an entity newly formed by a shareholder of the Company, entered into an agreement with Cupertino Electric, Inc. to purchase the entire $18.5 million construction payable (including accrued interest) owed to Cupertino. On November 11, 2002, the Company entered into an agreement with CRG that provided 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 of $9.9 million.

On December 5, 2002, CRG, LLC entered into an agreement with Kinetics Mechanical Services, Inc. and Kinetics Systems Inc. to purchase the Company’s $4.1 million construction payable (including accrued interest) to Kinetics Mechanical Services, Inc. and Kinetics Systems Inc. On December 5, 2002, the Company entered into an agreement with CRG that provided the Company with the option, upon the closing of the purchase of the debt by CRG from Kinetics Mechanical Services, Inc. and Kinetics Systems Inc., 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 of $2.4 million.

On April 30, 2003, CRG, LLC completed the purchase, at a discount, of the Company’s $22.6 million construction payables (including accrued interest) to Cupertino Electric, Inc., Kinetics Mechanical Services, Inc. and Kinetics Systems Inc., all of which were construction contractors for the NAP of the Americas. At the closing, CRG’s purchased construction payables were converted at $.75 per common share into 30,133,334 shares of the Company’s common stock with an approximate $14.1 million market value in accordance with the November 11, 2002 and the December 5, 2002 option agreements. As a result of these transactions, the Company recorded a gain on debt restructuring of approximately $8.5 million.

On April 30, 2003, the Company issued 10% Subordinated Secured Convertible Debentures (the “Subordinated Debentures”) due April 30, 2006 for an aggregate principal amount of $25.0 million. The debentures are convertible into shares of the Company’s stock at $0.50 per share. Interest is payable quarterly beginning July 31, 2003. The debentures were issued in exchange for $10.3 million in cash, $9.5 million in a promissory note due in full May 30, 2003 and $5.2 million of notes payable converted to the Subordinated Debentures. Included in the $5.2 million is $2.0 million of cash received in March 2003 in anticipation of the debenture transaction.

The maker of the $9.5 million promissory note failed to pay but agreed on June 16, 2003 to assign the note and the debenture to an entity newly formed by the son of a director of the Company. As of September 22, 2003, the Company had collected in full the promissory note. In connection with this transaction, the Company recognized a beneficial conversion feature of $9.5 million, based on the June 16, 2003 measurement date.

Prepayment by the Company is permitted under the 10% debt instrument subsequent to April 30, 2004. Prepayment by the Company is permitted under the 13% and 13.125% 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:

During the nine months ended December 31, 2003, the Company entered into the following equity transactions:

In October 2003, approximately $258,306 of debt was converted to 344,407 shares of common stock at $0.75 per share.

In September 2003, 1,000 shares of common stock were issued in conjunction with the exercise of 1,000 employee stock options at $0.42.

In August 2003, approximately $45,004 of debt was converted to 60,005 shares of common stock at $0.75 per share.

In August 2003, as a result of the subsequent sale of certain common shares, the Company issued an additional 3.7 million shares to NAP de Las Americas-Madrid S.A.

In July 2003, 11,334 shares of common stock were issued in conjunction with the exercise of 2,000 employee stock options at $0.78, 3,334 at $0.51 and 6,000 at $0.52.

In June 2003, warrants valued at approximately $4,000 were converted to 9,500 shares of common stock at $0.48 per share.

In June 2003, 42,667 shares of common stock were issued in conjunction with the exercise of 36,667 employee stock options at $0.51 and 6,000 employee stock options at $0.52.

In April 2003, in conjunction with the Ocean Bank debt conversion of $15.0 million in debt to equity, the Company issued 20.0 million shares of common stock at $0.75 per share.

In April 2003, in conjunction with the CRG transaction whereby $21.6 million in construction payables plus $1.0 million in accrued interest was converted to equity, the Company issued 30.1 million shares of common stock at $0.75 per share.

During the period from March 2001 through December 31, 2003, the Company issued warrants to third parties for services and to facilitate certain debt and equity transactions. The following table summarizes information about stock warrants outstanding as of December 31, 2003:

Effective July 22, 2003, Brian Goodkind stepped down as the Company’s Executive Vice President and Chief Operating Officer and became a strategic advisor to the Company’s Chief Executive Officer. In connection with this modification to the employment relationship with Mr. Goodkind, the Company accelerated the vesting on his outstanding stock options and awarded him new stock options. As a result, the Company recognized a non-cash, stock-based compensation charge of approximately $1.8 million in the quarter ended September 30, 2003.

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.

The Company’s Chief Executive Officer and other related parties have either provided or guaranteed some of the Company’s debt or equity financing. In addition, services are provided to entities in which the Company owns stock.

Following is a summary of transactions for the nine months ended December 31, 2003 and 2002 and balances with related parties included in the accompanying balance sheet as of December 31, 2003 and March 31, 2003.

During the nine months ended December 31, 2003, the Company purchased services from Fusion Telecommunications International, Inc. (“Fusion”). The Company’s Chief Executive Officer and Chairman of the Board of Directors has a minority ownership in Fusion and is a member of its Board of Directors.

As of December 31, 2003 and March 31, 2003, 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 and manages real estate projects focused in the technology sector. The Company’s reportable segments are strategic business operations that offer different products and services.

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.

A reconciliation of total segment loss from operations to loss before income taxes follows:

On January 20, 2004, the Company issued 36 shares of Series I 8% Convertible Preferred Stock (the “Preferred Stock”) for net proceeds of $800,000, together with 36 warrants (the “Warrants”) each of which entitles the holder to purchase 7,000 of the Company’s common shares. The warrants are exercisable for five years at $0.90 per share. The Preferred Stock is convertible into shares of the Company’s common stock at $0.75 per share. For the first three years the Preferred Stock accrues dividends at a rate of 8%. In January 2007, the Preferred Stock dividend rate will increase to 10% per year until January 2009 when it increases to 12%.

Dividends are payable, at our discretion, in shares of the Company’s common stock or cash. The Company has the right to redeem the Preferred Stock at $25,000 per share plus accrued dividends at any time after December 31, 2004.

The following discussion should be read in conjunction with the information contained in our Annual Report on Form 10-K for the fiscal year ended March 31, 2003, our Condensed Consolidated Financial Statements and elsewhere in this filing. The information contained herein is intended to facilitate an understanding and assessment of significant changes and trends related to our financial condition and results of operations.

Our consolidated financial statements as of and for the year ended March 31, 2003 were 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 June 30, 2003 stating that our recurring operating losses, negative cash flows, and liquidity deficit 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. See “— Liquidity and Capital Resources” below for a description of our plans to mitigate the business and financial circumstances giving rise to our going concern uncertainty.

On January 20, 2004, we issued 36 shares of Series I 8% Convertible Preferred Stock (the “Preferred Stock”) for net proceeds of $800,000, together with 36 warrants each of which entitles the holder to purchase 7,000 of our common shares and which are exercisable for five years at $0.90 per share. The Preferred Stock is convertible into shares of our common stock at $0.75 per share. In January 2007, the Preferred Stock dividend rate will increase to 10% per year until January 2009 when it increases to 12%. Dividends are payable, at our discretion, in shares of our common stock or cash. We have the right to redeem the Preferred Stock at $25,000 per share plus accrued dividends at any time after December 31, 2004.

We operate facilities in Florida, California and Sao Paulo from which we assist users of the Internet and large communications networks in communicating with other users and networks. Our primary facility is the NAP of the Americas located in Miami, Florida, a network access point where we provide exchange point, colocation and managed services to carriers, Internet service providers, network service providers, government entities, multi-national enterprises and other end users.

Network access points are locations where two or more networks meet to interconnect and exchange Internet and data 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, however, participation in NAPs comes from telecommunications carriers, Internet service providers 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.”

Initially, four NAPs — in New York, Washington, D.C., Chicago, and San Francisco — were created and supported by the National Science Foundation as part of the transition from the United States government-financed Internet to a commercially operated Internet. Since that time, privately owned NAPs have been developed, including the NAP of the Americas. We refer to our facilities as TerreNAP Centers.

Our TerreNAP Centers are carrier-neutral. Our customers can choose from among the many carriers available at TerreNAP Centers with which they wish to conduct business. We believe carrier neutrality provides us with a competitive advantage when compared to carrier-operated network access points where customers are limited to conducting business with one carrier.


	•	the site and platform they need to exchange Internet and data traffic;

	•	a menu of related professional and managed services; and

	•	space to house their equipment and their network facilities in order to be close to the Internet and data traffic exchange connections that take place at the NAP of the Americas.

Currently, our customers include telecommunications carriers such as AT&T, MCI, Qwest and Sprint, enterprises such as Yahoo!, Bacardi USA, Intrado and Crescent Heights, government agencies including the Diplomatic Telecommunications Services Programming Office (DTSPO), a division of the United States Department of State, the United States Southern Command and the City of Coral Gables.

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.

Terremark was formed in 1982 and, along with its subsidiaries, was engaged in the development, sale, leasing, management and financing of various real estate projects. Terremark provided these services to private and institutional investors, as well as for its own account. The real estate projects with which Terremark was involved included retail, high-rise office buildings, mixed-use projects, condominiums, hotels and governmental assisted housing. Terremark was also involved in a number of ancillary businesses that complemented its core development operations. Specifically, Terremark engaged in brokering financial services, property management, construction management, condominium hotel management, residential sales and commercial leasing and brokerage, and advisory services.

After the April 28, 2000 merger, and as a result of changes in our business conditions, including market changes in the telecommunications industry and the lack of debt and equity financing vehicles to fund other business expansion, we began to redefine and focus our strategy, and began implementing a plan to exit all lines of business and real estate activities not directly related to the TerreNAP Center strategy. Lines of business discontinued included IP fax services, unified messaging services, and telephony. Non-core real estate activities exited included real estate development, property management, financing and the ancillary businesses that complemented the real estate development operations.

As of March 31, 2002, we had completed the exit of lines of business and real estate activities not related to our TerreNAP Center strategy. Our real estate activities currently include technology and other construction work and management of the property where the NAP of the Americas is located. During the current fiscal year our real estate activities have not been significant. Our principal executive office is located at 2601 S. Bayshore Drive, Miami, Florida 33133. Our telephone number is (305) 856-3200.

Revenue. The following charts provide certain information with respect to our revenues:

The increase in data center-services revenue was primarily the result of growth in our deployed customer base from 63 customers as of December 31, 2002 to 133 customers as of December 31, 2003. Data center-services includes $394,000 in fixed fees for the monitoring of network connectivity under a U.S. Federal government contract. Data center — connectivity solutions consisted of revenue from the procurement and installation of equipment and the procurement of connectivity under a U.S. Federal government contract. Data center — contract termination fee represents amounts received from two customers for the termination of their contracted services with the NAP of the Americas. As a result of this contract termination, we experienced a decrease in monthly recurring revenues of approximately $14,000. Contract termination fees are recognized upon contract termination when there are no remaining contingencies or obligations on our part.

Data center-services revenues consist of colocation services, such as leasing of space and provisioning of power; exchange point services, such as peering and interconnection; and managed and professional services, such as network management, procurement and installation of equipment and procurement of connectivity, managed router services, technical support and consulting. We anticipate an increase in revenue from colocation, exchange point and managed services as we add more customers to our network of TerreNAP Centers, sell additional services to existing customers and introduce new products and services. We also expect managed and professional services to become an important source of revenue and

increase as a proportion of data center-services. For the three months ended December 31, 2003 and 2002, data center-services revenues consisted of the following:

Development, commission and construction fees were $95,000 for the three months ended December 31, 2002. We had no development, commission and construction revenues for the three months ended December 31, 2003 and do not expect any such fees in the foreseeable future.

Management fees increased $10,000 to $44,000 for the three months ended December 31, 2003 from $34,000 for the three months ended December 31, 2002. The only facility we currently manage is TECOTA, the property in which the NAP of the Americas is located. We collect a monthly management fee from TECOTA equal to the greater of approximately $8,000 or 3% of cash collected by TECOTA. Because we do not plan to manage properties other than TECOTA, we anticipate that management fees will not be a significant source of revenue in the foreseeable future.

Construction contract revenue increased $82,000 to $229,000 for the three months ended December 31, 2003 from $147,000 for the three months ended December 31, 2002. During the three months ended December 31, 2003, we completed one construction contract and, as of December 31, 2003, had one construction contract in process. During the three months ended December 31, 2002, we completed one construction contract and, as of December 31, 2002, we had three construction contracts in process. The increase in construction contract revenue is due to an increase in the average quarterly revenue per contract, which increased from $41,000 in the third quarter of fiscal year 2003 to $137,000 in third quarter of fiscal year 2004. Due to our approach to our construction business, we expect revenues from construction contracts to significantly fluctuate from quarter to quarter. We anticipate focusing our efforts on obtaining construction contracts for projects related to technology infrastructure.

The U.S. Federal government accounted for approximately $542,000, or 13%, of total data center-services revenues for the three months ended December 31, 2003. Latin American Nautilus USA Inc. accounted for approximately $1.2 million, or 11%, of data center-services revenues for the nine months ended December 31, 2003. Latin American Nautilus USA Inc. and Progress Telecom accounted for approximately $312,000, or 12%, and $262,000, or 10%, of data center-services revenues, respectively, for the three months ended December 31, 2002. Latin American Nautilus USA Inc. and Progress Telecom accounted for approximately $940,000, or 13%, and $736,000, or 10%, of data center-services revenues, respectively, for the nine months ended December 31, 2002.

Data Center Operations Expenses. Data center operations expenses increased $1.9 million, or 67.9%, to $4.7 million for the three months ended December 31, 2003 from $2.8 million for the three months ended December 31, 2002. Data center operations expenses consist mainly of rent, operations personnel, electricity, chilled water, procurement of equipment and connectivity and security services. The increase in total data center operations expenses is due to an increase of $1.1 million in rent, an increase of $143,000 in electricity and chilled water and $540,000 in costs related to the procurement of equipment and connectivity under a U.S. Federal government contract. The increase in rent expense is due to the July 2003 opening of our NAP-West facilities in Santa Clara, California and the leasing of an additional 149,184 square feet of space in the third floor of TECOTA, which commenced in November 2003. We have been paying rent for our NAP-West facilities since January 2001 but before we decided to open these facilities in July 2003 related expenses were recorded as impairment charges. Rent expense is being recorded on the straight-line method based on contractual amounts even though actual payments for the third floor of TECOTA will not commence until April 2005. We anticipate that some data center

expenses, principally electricity, chilled water, payroll and costs related to managed services, will increase as we provide additional services to existing customers and introduce new products and services.

Contract Construction Expenses. Contract construction expenses increased $95,000 to $229,000 for the three months ended December 31, 2003 from $134,000 for the three months ended December 31, 2002. This increase is a result of the increase in number of construction contracts and average dollar amount of those contracts as discussed above in “construction contract revenue.” Decrease in gross margin is due to the fact that the construction contract in process at December 31, 2003 is in the beginning stage. We do not currently anticipate losses on any of the individual construction contracts.

General and Administrative Expenses. General and administrative expenses decreased $200,000, or 6.5%, to $2.9 million for the three months ended December 31, 2003 from $3.1 million for the three months ended December 31, 2002. General and administrative expenses consist primarily of salaries and related expenses, professional service fees, rent and other general corporate expenses. The decrease in general and administrative expenses is due to a decrease in payroll expenses of $252,000. The decrease in payroll is mainly due to a reduction in staff levels. The number of employees whose salaries are included in general and administrative expenses decreased from 57 for the three months ended December 31, 2002 to 47 for the three months ended December 31, 2003.

Sales and Marketing Expenses. Sales and marketing expenses decreased $200,000, or 20.0%, to $800,000 for the three months ended December 31, 2003 from $1.0 million for the three months ended December 31, 2002. The significant components of sales and marketing expenses are payroll and benefits. The decrease in sales and marketing expenses is due to decreases of $110,400 in investor relations expense and $51,000 in payroll. During the quarter ended December 31, 2002, we issued warrants valued at $110,400 to Strategic Growth International for investor relations services. The number of employees whose salaries are included in sales and marketing expenses were 23 for the three months ended December 31, 2002 and 19 for the three months ended December 31, 2003.

Depreciation and Amortization Expense. Depreciation and amortization expense decreased $100,000 to $1.2 million for the three months ended December 31, 2003 from $1.3 million for the three months ended December 31, 2002. The decrease was due to reductions in property and equipment resulting primarily from impairment charges recorded during the year ended March 31, 2003, which in turn decreased depreciation expense.

Impairment of Long-Lived Assets. On October 15, 2002, we entered into a joint venture agreement to develop and operate a Health Insurance Portability and Accountability Act (“HIPPA”) compliant network access point at the NAP of the Americas in Miami, Florida. We acquired a 10% interest in the joint venture company by issuing a $1.0 million promissory note. As the joint venture was not fully funded by December 31, 2002, we determined that our joint venture interest was impaired. Therefore, we recognized a $1.0 million impairment as of December 31, 2002.

Interest Expense. Interest expense increased $1.5 million, or 53.6%, to $4.3 million for the three months ended December 31, 2003 from $2.8 million for the three months ended December 31, 2002. The increase was due to the amortization of approximately $2.7 million related to the beneficial conversion feature on the issuance of convertible debentures issued in April 2003, offset by a decrease in interest expense resulting from the $15.0 million reduction in the average debt balance outstanding and lower interest rates on new debt and amendments to existing debt.

Inducement on Debt Conversion. During the three months ended December 31, 2002, we incurred a non-cash expense of $5.0 million related to the $15.8 million of our convertible debt that was converted into 22.0 million shares of our common stock. The debt was converted at $0.75 per share, which was approximately 50% below the stated conversion price. This expense represents the fair value of the additional common shares issued by us as a result of the lower conversion price.

The net loss from data center operations is primarily the result of insufficient revenues to cover our operating and interest expenses. We expect to generate net losses until we reach required levels of monthly revenues. Although we had a net operating loss for the current period, we anticipate that our real estate activities will generate sufficient revenues to cover their operating expenses and we do not expect to fund operating losses from our real estate activities in the foreseeable future.

Revenue: The following charts provide certain information with respect to our revenues:

The increase in data center — services revenue was primarily the result of growth in our deployed customer base from 63 customers as of December 31, 2002 to 133 customers as of December 31, 2003. Data center-services includes $512,000 in fixed fees for the monitoring of network connectivity under a U.S. Federal government contract. Data center — connectivity solutions of $700,000 for the nine months ended December 31, 2003 consisted of revenue from the procurement and installation of equipment and the procurement of connectivity under a U.S. Federal government contract. Data center — contract termination fee was $422,000 for the nine months ended December 31, 2003 and represents amounts received from three customers for the termination of their contracted services with the NAP of the Americas. As a result of these contract terminations, we experienced a decrease in monthly recurring revenues of approximately $50,000. Contract termination fee was $1.1 million for the nine months ended

December 31, 2002 and represents amounts received from one customer for the termination of their contracted services with the NAP of the Americas. Contract termination fees are recognized upon contract termination when there are no remaining contingencies or obligations on our part. The increases in total data center revenues were partially offset by a reduction in our development, management and construction contracts revenue of approximately $3.1 million.

Data center services revenues consist of colocation services, such as leasing of space and provisioning of power; exchange point services, such as peering and interconnection; and managed and professional services, such as network management, procurement and installation of equipment and procurement of connectivity, managed router services, technical support and consulting. We anticipate an increase in revenue from colocation and exchange point services as we add more customers to our network of NAP’s, sell additional services to existing customers and introduce new products and services. We also expect managed and professional services to become an important source of revenue and increase as a percentage of data center-services. For the nine months ended December 31, 2003 and 2002, data center-services revenues consisted of the following:

Development, commission and construction fees decreased $130,000 to $41,000 for the nine months ended December 31, 2003 from $171,000 for the nine months ended December 31, 2002. We do not expect any revenues from development, commission and construction fees in the future.

Management fees decreased $1,000 to $151,000 for the nine months ended December 31, 2003 from $152,000 for the nine months ended December 31, 2002. The only facility we currently manage is TECOTA, the property in which the NAP of the Americas is located. We collect a monthly management fee from TECOTA equal to the greater of approximately $8,000 or 3% of cash collected by TECOTA. Because we do not plan to manage properties other than TECOTA, we anticipate that management fees will not be a significant source of revenue in the future.

Construction contract revenue decreased $3.0 million to $328,000 for the nine months ended December 31, 2003 from $3.3 million for the nine months ended December 31, 2002. During the nine months ended December 31, 2003, we completed three construction contracts and, as of December 31, 2003, had one construction contract in process. During the nine months ended December 31, 2002, we completed six construction contracts and, as of December 31, 2002, we had three construction contracts in process. The decrease in construction contract revenue is due to a decrease in the average revenue per contract, which decreased from $523,000 in the third quarter of fiscal year 2003 to $35,000 in the third quarter of fiscal year 2004. Due to our opportunistic approach to our construction business, we expect revenues from construction contracts to significantly fluctuate from quarter to quarter. We anticipate focusing our efforts on obtaining construction contracts for projects related to technology infrastructure.

Data Center Operations Expenses. Data center operations expenses increased $2.6 million, or 30.2%, to $11.2 million for the nine months ended December 31, 2003 from $8.6 million for the nine months ended December 31, 2002. Data center operations expenses consist mainly of rent, operations personnel, electricity, chilled water, procurement of equipment and connectivity and security services. The increase in total data center expenses is due to an increase of $1.4 million in rent and an increase of $1.1 million in costs related to the procurement and installation of equipment and procurement of connectivity under a U.S. Federal government contract. The increase in rent expense is due to the July 2003 opening of NAP-West facilities in Santa Clara, California and the leasing of an additional 149,184 square feet of space in the third floor of TECOTA, which commenced in November 2003. We have been paying rent for our NAP-West facilities since January 2001 but before we decided to open these facilities in July 2003 related expenses were recorded as impairment charges. Rent expense is being recorded on the straight-line method

based on contractual amounts even though actual payments for the third floor of TECOTA will not commence until April 2005. We anticipate that certain data center operations expenses, principally electricity, chilled water, payroll and costs related to managed services, will increase as we provide additional services to existing customers and introduce new products and services.

Contract Construction Expenses. Contract construction expenses decreased $2.6 million to $338,000 for the nine months ended December 31, 2003 from $2.9 million for the nine months ended December 31, 2002. This decrease is a result of the decrease in number of construction contracts and average dollar amount of those projects as discussed above in “construction contract revenue.” Decrease in gross margin is due to the fact that the contract in process at December 31, 2003 is in the beginning stage.

General and Administrative Expenses. General and administrative expenses increased $700,000, or 7.3%, to $10.3 million for the nine months ended December 31, 2003 from $9.6 million for the nine months ended December 31, 2002. General and administrative expenses consist primarily of salaries and related expenses, professional service fees, rent and other general corporate expenses. The increase in general and administrative expenses is primarily due a stock-based compensation charge of $1.8 million, offset by decreases in payroll of $480,000, travel and entertainment of $185,000 and professional fees of $193,000. Effective July 22, 2003, Mr. Goodkind stepped down as our Executive Vice President and Chief Operating Officer and became a strategic advisor to our Chief Executive Officer. In connection with this modification to our employment relationship with Mr. Goodkind, we accelerated the vesting on his outstanding stock options and awarded him new stock options. As a result, we recognized a non-cash, stock-based compensation charge of approximately $1.8 million in the quarter ended September 30, 2003. The decrease in payroll is mainly due to a reduction in staff levels. The number of employees whose salaries are included in general and administrative expenses decreased from 59 for the nine months ended December 31, 2002 to 47 for the nine months ended December 31, 2003. The decreases in professional services and travel and entertainment are principally the result of an overall reduction in spending due to cost containment efforts.

Sales and Marketing Expenses. Sales and marketing expenses decreased $700,000, or 23.3%, to $2.3 million for the nine months ended December 31, 2003 from $3.0 million for the nine months ended December 31, 2002. The significant components of sales and marketing expenses are payroll and benefits. The decrease in sales and marketing expenses is due to decrease in payroll and sales commissions of $45,000, decrease in public relations of $112,000, decrease in travel and entertainment of $140,000 and decrease in investor relations of $331,200. During the nine months ended December 31, 2002, we issued warrants valued at approximately $331,200 to Strategic Growth International for investor relations services. The decrease in payroll and sales commissions is mainly due to staff level reductions. The number of employees whose salaries are included in sales and marketing expenses were 23 as of December 31, 2002 and 19 as of December 31, 2003. The decrease in public relations and travel and entertainment expenses is the result of staff level reductions and overall reduction in spending due to cost containment efforts.

Depreciation and Amortization Expense. Depreciation and amortization expense decreased $300,000 to $3.6 million for the nine months ended December 31, 2003 from $3.9 million for the nine months ended December 31, 2002. The decrease was due to reductions in property and equipment resulting primarily from impairment charges recorded during the year ended March 31, 2003, which in turn decreased depreciation expense.

Impairment of Long-Lived Assets. On October 15, 2002, we 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. We acquired a 10% interest in the joint venture company by issuing a $1.0 million promissory note. As the joint venture was not fully funded by December 31, 2002, we determined that our joint venture interest was impaired. Therefore, we recognized a $1.0 million impairment as of December 31, 2002. In addition, during the nine months ended December 31, 2002 we recorded $350,000 in expected carrying costs through March 2003 for our facility in Santa Clara. This facility became operational in July 2003.

Debt Restructuring. During the nine months ended December 31, 2003, we incurred a non-cash gain of $8.5 million related to financing transactions whereby $21.6 million of our construction payables plus $1.0 million in accrued interest was converted to 30.1 million shares of our common stock with a $14.1 million market value upon conversion.

Interest Expense. Interest expense increased $1.4 million, or 15.4%, to $10.5 million for the nine months ended December 31, 2003 from $9.1 million for the nine months ended December 31, 2002. The increase was due to the amortization of approximately $5.9 million related to the beneficial conversion feature on the issuance of convertible debentures issued in April 2003, mostly offset by a decrease in interest expense resulting from the $15 million reduction in the average debt balance outstanding and lower interest rates on new debt and amendments to existing debt.

Inducement on Debt Conversion. During the nine months ended December 31, 2002, we incurred a non-cash expense of $5.0 million related to the $15.8 million of our convertible debt that was converted into 22.0 million shares of our common stock. The debt was converted at $0.75 per share, which was approximately 50% below the stated conversion price. This expense represents the fair value of the additional common shares issued by us as a result of the lower conversion price.

Interest Income. Interest income increased $12,000 to $101,000 for the nine months ended December 31, 2003 from $89,000 for the nine months ended December 31, 2002. The period over period increase is related to a combination of the increase in the average cash balances outstanding and interest income resulting from a $5.0 million note receivable from our Chief Executive Officer, which began accruing interest in September 2002.

From the time of the merger with AmTec through December 31, 2003, we have incurred net operating losses of approximately $220.0 million including approximately $82.6 million of losses related to discontinued operations. Our cash flows from operations for the nine months ended December 31, 2003 and 2002 were negative and our working capital deficit was approximately $17.9 million and $39.0 million as of December 31, 2003 and March 31, 2003, respectively. Due to our recurring losses from operations, the uncertainty surrounding the anticipated increase in revenues and the lack of committed sources of additional debt or equity, substantial doubt exists about our ability to continue as a going concern.

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 Manuel D. Medina, our Chief Executive Officer and Chairman of the Board. In prior periods we also successfully shut down or disposed of non-core operations and implemented a series of expense reductions to reduce our liquidity needs. We have also been successful in working with our creditors to extend payment terms.

Our main sources of liquidity are cash and cash equivalents amounting to approximately $2.1 million as of January 31, 2004.

Based on customer contracts signed as of January 31, 2004, our monthly cash deficit from operations is approximately $1.0 million. In order to eliminate this current monthly cash deficit from operations, the new monthly revenues required range from $1.6 million to $2.6 million. This range of new revenue depends on the mix of the services sold and their corresponding margin.

We expect to increase our revenues based on existing contracts, including those with the U.S. Federal government and enterprises, and expected future contracts from potential customers currently in our sales pipeline. We have identified additional potential customers, including the Federal, state and local governments, and are actively offering available services to them. However, our projected revenues depend on several factors, some of which are beyond our control, including the rate at which our services are sold to the government sector and the commercial sector, the ability to retain our customer base, the willingness and timing of potential customers in outsourcing the housing and management of their technology infrastructure to us, the reliability and cost-effectiveness of our services and our ability to market our services.

On November 4, 2003, we entered into an agreement to lease an additional 149,184 square feet of space in the third floor of TECOTA, the property in which the NAP of the Americas is located, and extend the Company’s existing lease in the second floor or the same property to co-terminate with the third floor lease on May 31, 2025. This additional space allows us to customize build-outs for large customers. Under the terms of the lease agreement, monthly base rent payments for the third floor space of approximately $200,000 will commence in April 2005. Effective June 1, 2006 and 2009, annual base rent for the third floor will increase to approximately $3.0 million and $3.5 million, respectively, with annual 2.5% increases thereafter. We are currently building out a portion of the third floor. Based on existing and anticipated future contracts from potential customers currently in the sales pipeline, we will require approximately $3 to $4 million in additional debt or equity financing to build out the portion of the third floor necessary to service these customers. If we are unsuccessful in obtaining additional debt or equity financing, we will be forced to negotiate payment terms with the contractors for the build out. These payment terms may restrict our ability to engage in some activities.

Although our real estate activities had a net operating loss of approximately $68,000 for the three months ended December 31, 2003, we anticipate that these activities will generate enough revenues to cover their operating expenses. If our revenues are below amounts anticipated, cash needs are not expected to exceed $200,000 for the next twelve months.

Our current liabilities as of December 31, 2003 amount to approximately $23.2 million, including approximately $14.1 million in debt and capital lease obligations maturing within one year and $5.9 million in accounts payable and accrued expenses. Currently, we do not have the cash to meet these obligations. We further anticipate that revenues will not be sufficient to make principal payments on debt maturing within one year.

In the past we have been able to work with our lenders and vendors to continue to extend the terms of our debt and accounts payable. We intend to continue these efforts. The Company also anticipates collection of prepayments under future customer contracts. We further plan to fund our business by increasing revenues and cash collections from customers and by selling additional debt or equity securities. Financing may not be available to us. Further, any additional equity financing may be dilutive to existing shareholders. If we are unsuccessful in obtaining additional financing, extending the terms of our maturing debt or negotiating payment terms with our creditors, we will be forced to curtail certain activities. In addition, some or our creditors may pursue legal rights against us. We do not expect to fund any amounts under our guaranties.

Cash used in operations for the nine months ended December 31, 2003 was approximately $12.9 million compared to cash used in operations of $16.7 million for the nine months ended December 31, 2002, a decrease of $3.8 million. This decrease was primarily due to the collection of $3.8 million fee for the grant of an exclusive right to develop a TerreNAP Center in Australia.

Cash used in investing activities for the nine months ended December 31, 2003 was $1.8 compared to cash used in investing activities of $1.1 million for the nine months ended December 31, 2002, an increase of $700,000. This is due to the increase of approximately $900,000 in leasehold improvements for the third floor of TECOTA.

Cash provided by financing activities for the nine months ended December 31, 2003 was $16.3 million compared to cash provided by financing activities of $18.1 million for the nine months ended December 31, 2002, a decrease of $1.8 million. For the nine months ended December 31, 2003, cash provided by financing activities included $20.3 million of debt financing partially offset by $4.0 million in debt repayments. For the nine months ended December 31, 2002, cash provided by financing activities included $17.0 million of equity financing, partially offset by $3.3 million in payments of construction payables.

As of December 31, 2003, our total indebtedness, including interest, from notes payable, construction payables, capital lease obligations, convertible debt and Series H preferred stock was approximately $81.5 million.

Ocean Bank Credit Facility: On September 5, 2001, we borrowed $48.0 million from Ocean Bank. The proceeds of the original credit facility was used to:


	•	repay a $10.0 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 (Mr. Medina, in turn, used the $10.0 million to repay a personal $10.0 million short-term loan from Ocean Bank);

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

	•	pay $1.2 million in loan costs related to the $48.0 million credit facility (including a $720,000 commitment fee); and

	•	fund the NAP of the Americas build out costs.

Mr. Medina has personally guaranteed the credit facility. In addition to Mr. Medina’s personal guarantee of the credit facility, and in order to obtain the facility, Ocean Bank required Mr. Medina, prior to the bank disbursing funds under the credit facility, to 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 commit to accelerate the maturity date of those personal loans. In the event of our default under the credit facility, Mr. Medina also agreed to subordinate debt that we owed to him. Mr. Medina has repaid part of those personal loans to Ocean Bank, leaving an outstanding principal balance of approximately $4.6 million on December 31, 2003. On February 11, 2004, Mr. Medina extended one loan with a principal balance of approximately $3.3 million to February 11, 2005 and made an interest payment of $63,500. He anticipates extending the maturity date on the other loan with a principal balance of approximately $1.3 million by the end of February 2004.

In consideration of Mr. Medina’s agreeing to repay his indebtedness to Ocean Bank earlier than otherwise required, pledging the certificate of deposit and personally guaranteeing our credit facility and approximately $21.0 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 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 Ocean 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. Mr. Medina and we have agreed that we have the right to withhold payment to him of $1,375,000 in convertible debentures owned by him until the note receivable is repaid. The note receivable

from Mr. Medina is shown as an adjustment to equity. The $48.0 million credit facility and the note receivable from Mr. Medina were approved by our board of directors.

In July 2002, we and Mr. Medina modified the terms of his $5.0 million non-interest bearing note payable to us. As amended, the note matures September 30, 2004 and bears interest at 2%, the applicable federal rate. Interest is due in bi-annual installments. We review the collectibility of this note on a quarterly basis.

On April 30, 2003, Ocean Bank revised its $44.0 million credit facility with us by converting $15.0 million of the outstanding principal balance into equity and extending the term of the remaining $29.0 million until April 30, 2006. Concurrent with this transaction, we paid all past due interest as of March 31, 2003, plus accrued interest through April 28, 2003 totaling approximately $1.6 million and prepaid approximately $900,000 of interest. Under the new terms, interest is payable quarterly at an annual rate of 5.25% for the first twelve months and 7.5% thereafter.

Construction Payables: On November 8, 2002, CRG, LLC entered into an agreement with Cupertino Electric, Inc. to purchase our entire $18.5 million construction payable (including accrued interest) to Cupertino. Under the terms of their agreement, CRG was to pay Cupertino $8.4 million for the $18.5 million of our debt. On November 11, 2002, we entered into an agreement with CRG that provided us with 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.

On December 5, 2002, CRG entered into an agreement with Kinetics Mechanical Services, Inc. and Kinetics Systems Inc. to purchase our entire $4.1 million construction payable (including accrued interest) to Kinetics. Under the terms of their agreement CRG was to pay Kinetics $1.9 million. On December 5, 2002, we also entered into an agreement with CRG that provided us the option, upon the closing of the purchase of the debt by CRG from Kinetics, 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.

On April 30, 2003, CRG LLC completed the purchase, at a discount, of our $22.6 million construction payables (including accrued interest) to Cupertino and Kinetics. Cupertino and Kinetics were construction contractors for the NAP of the Americas. At the closing, the construction payables were converted into 30,133,334 shares of our common stock.

CRG was created by Mr. Christian Altaba, one of our shareholders, for the purpose of buying our debt from Cupertino Electric and Kinetics Mechanical Services. None of the participants in CRG were or currently are our officers or directors. There is no affiliation between CRG and Cupertino or Kinetics. CRG is managed by Mr. Christian Altaba.

Convertible Debentures: On April 30, 2003, we issued 10% Subordinated Secured Convertible Debentures due April 30, 2006 for an aggregate principal amount of $25.0 million. The debt is convertible into shares of our common stock at $0.50 per share. Interest is payable quarterly beginning July 31, 2003. The debentures were issued in exchange for $10.3 million in cash, $9.5 million in a promissory note due in full May 30, 2003 and $5.2 million of notes payable which were converted into the Subordinated Debentures. Included in the $5.2 million is $2.0 million of cash received in March 2003 in anticipation of the transaction.

Supra Group, Inc., the maker of the $9.5 million promissory note failed to pay but agreed on June 16, 2003 to assign the note and the debenture to Gigabyte, LLC, an entity newly formed by Paolo Amore, the son of Guillermo Amore, one of our directors. Two of our directors, Guillermo Amore and Miguel Rosenfeld, guaranteed payment and performance in accordance with the amended terms of the note. As of September 22, 2003, we had collected in full the promissory note. In connection with this transaction, we recognized a beneficial conversion feature of $9.5 million, based on the June 16, 2003 measurement date.

Other: In August 2002, we modified the terms of a note payable to TotalBank. The maturity date was extended until December 2002 with some principal payments to be made monthly and the remaining

principal and interest due at maturity. In conjunction with the modification and extension of this note, we issued 400,000 shares of our common stock valued at $180,000 to a shareholder who formerly guaranteed the note. On March 31, 2003, we entered into a forbearance agreement with TotalBank and modified the terms of our note. Under the modified agreement terms, we made principal payments of $100,000 and $125,000 in April 2003 and May 2003, respectively, and TotalBank retained the right to enforce accelerated remedies if we default on the modified note. As of December 31, 2003, we had not paid $367,178 of principal balance due under the modified note. We are currently negotiating an extension of this note.

As of December 31, 2003, we had not paid approximately $566,000 relating to a lease. We have negotiated a payment plan with the vendor providing for partial payments.

As of December 31, 2003, we have not paid approximately $792,000 related to our 2002 tangible property taxes. We have negotiated a payment plan with the Tax Collector Public Service Office which provides for partial payments.

As of December 31, 2003, we had not paid approximately $1.1 million of accrued interest related to our convertible debentures. This amount has been subsequently paid.

Between April 2003 and December 2003, we borrowed an aggregate of $750,000 of short-term debt bearing interest at 10%. During the same period, we repaid $1,628,000 of our short-term debt.

On October 30, 2002, we entered into an agreement with Mr. Arturo Ehrlich to assist us in raising capital. We issued warrants to purchase 1.2 million shares of our common stock at $0.75 per share to Mr. Ehrlich together with a cash payment of $180,000 as an advance for future expenses. Mr. Ehrlich is a director of SBP Investments, Inc., a corporation that lent us $3.0 million in October 2002.

The Technology Center of the Americas, LLC, (“TECOTA”), an entity in which we have a 0.84% membership interest, owns the building that leases the space to us for the NAP of the Americas under a 20 year lease. The construction of TECOTA was funded with $48.0 million in equity and $35.4 million in construction financing from a consortium of banks. We guaranteed this construction financing during development and construction of TECOTA. After TECOTA was built, some of the banks released us from their portion of the guarantee, the result of which was to reduce the guarantee to $5.5 million. As of December 31, 2003, the TECOTA debt outstanding under the construction loan was $35.4 million. We do not expect to fund any amounts under our guarantee.

We guarantee up to $6.5 million in personal debt of Manuel D. Medina, our Chief Executive Officer and Chairman. See “— Liquidity and Capital Resources” for details.

We lease space for our operations, office equipment and furniture under non-cancelable operating leases. Some equipment is also leased under capital leases, which are included in leasehold improvements, furniture and equipment.

The following table 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 December 31:

In March 2003, the FASB reached a consensus on Emerging Issues Task Force (EITF) Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables”. The consensus provides guidance on the accounting for multiple element revenue arrangements. It also provided guidance on how to separate multiple element revenue arrangements into its separate units of accounting and how to measure and allocate the arrangement’s total consideration to each unit. The effective date of EITF 00-21 is for revenue arrangements entered into in fiscal periods (interim or annual) beginning after June 15, 2003. Our adoption of EITF 00-21 as of July 1, 2003 has not impacted its consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51.” This interpretation clarifies consolidation requirements for variable interest entities. It establishes additional factors beyond ownership of a majority voting interest to indicate that a company has a controlling financial interest in an entity (or a relationship sufficiently similar to a controlling financial interest that it requires consolidation). This interpretation applies immediately to variable interest entities created or obtained after January 31, 2003 and must be retroactively applied to holdings in variable interest entities acquired before February 1, 2003 in interim and annual financial statements issued for periods ending after December 15, 2003. NAP de las Americas-Madrid S.A. is a variable interest entity but our current relationship indicates that it does not require consolidation. Our maximum related exposure to loss is approximately $500,000 at December 31, 2003. Management does not expect that the adoption of FIN 46 to have a significant impact in the Company’s consolidated financial position or result of operations.

In April 2002, the 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 is effective for our 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. However, SFAS 145 had an impact on the presentation of the results of operations for the nine months ended December 31, 2003 (see Note 5)

This Form 10-Q may contain “forward-looking statements” based on our current expectations, assumptions, and estimates about us and our industry. These forward-looking statements involve risks and uncertainties. Words such as “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “will,” “may,” and other similar expressions identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of several factors more fully described in “Risk Factors” and elsewhere in this Quarterly Report. The forward-looking statements made in this Quarterly Report relate only to events as of the date on which the statements are made. We undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

Our recurring losses from operations and the lack of committed sources of additional debt or equity to support working capital deficits raises substantial doubt about our ability to continue as a going concern. From the time of our merger with AmTec through December 31, 2003, we have incurred net operating losses of approximately $220.0 million. Our cash flows from operations for the nine months ended December 31, 2003 and 2002 were negative and our working capital deficit was approximately $17.9 million and $39.0 million as of December 31, 2003 and March 31, 2003, respectively.

As of January 31, 2004, our main sources of liquidity are cash and cash equivalents of approximately $2.1 million. We plan to fund our business by increasing revenues and cash collections from customers and selling additional debt or equity securities. We may not increase revenues and additional financing may not be available, or, if available the financing may not be obtainable on terms acceptable to us. Additional financing may be substantially dilutive to existing shareholders. If we are unsuccessful in increasing revenues, decreasing expenses or extending the maturity of our obligations, we will need additional debt or equity financing by April 2004.

We have significant debt service obligations which will require the use of a substantial portion of our available cash. As of December 31, 2003, our total liabilities were approximately $98.5 million, obligations guaranteed by us were $10.1 million and our total shareholders’ deficit was $27.9 million. For each of the twelve months ended December 31, 2004 and 2005, our total future lease payments and maturities of debt obligations are $18.8 million and $19.2 million, respectively. Currently, we do not have sufficient cash to meet these obligations.

We are obligated to make principal and interest payments on our credit facility with Ocean Bank each year until it matures in 2006. Additionally, $58.4 million of our credit facilities mature in 2006. Each of these obligations requires significant amounts of liquidity. We may need additional capital to fund those obligations. Our ability to arrange financing and the cost of this financing will depend upon many factors, including:


	•	general economic and capital markets conditions, and in particular the non-investment grade debt market;

	•	conditions in the Internet infrastructure market;

	•	credit availability from banks or other lenders;


	•	investor confidence in the telecommunications industry generally and our company specifically; and

	•	the success of our TerreNAP Centers.

If we need additional funds, our inability to raise them will have an adverse effect on our operations. If we decide to raise additional funds by incurring debt, we may become subject to additional or more restrictive financial covenants and ratios.

If we do not locate financial or strategic partners, we may have to delay or abandon expansion plans. Expenditures commence well before a TerreNAP Center opens, and it may take an extended period to approach break-even capacity utilization. It takes a significant period of time to select the appropriate location for a new TerreNAP Center, construct the necessary facilities, install equipment and telecommunications infrastructure and hire operations and sales personnel. As a result, we expect that individual TerreNAP Centers will experience losses for more than one year from the time they are opened. As a part of our TerreNAP Center strategy, we intend to rely on third-party financial or strategic partners to fund the development costs. If we are unable to establish these third-party relationships, we may 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.

Brazilian political and economic conditions may have an adverse impact on our operations. We commenced operations in Brazil in February 2002. The Brazilian government has frequently intervened in the Brazilian economy and occasionally makes drastic changes in policy. The Brazilian government’s actions to control inflation and effect other policies have often involved wage and price controls, currency devaluations, capital controls and limits on imports, among other things. Luiz Inacio Lula da Silva, the left-wing candidate, was elected president of Brazil on October 27, 2002. The economic and fiscal policies of Mr. Lula da Silva could have an adverse effect on the Brazilian economy and our results of operations. Our business, financial condition and results of operations in Brazil may be adversely affected by changes in policy involving factors outside our control, such as:


	•	monetary and fiscal policies

	•	currency fluctuations

	•	energy shortages

	•	other political, social and economic developments affecting Brazil

In early 1999, the Brazilian government allowed the real to float freely, resulting in a significant devaluation against the U.S. dollar. Since that time, Brazil’s currency has experienced further significant devaluations against the U.S. dollar. The devaluation of the real and the decline in growth in the Brazilian economy have been caused in part by the continued recession in the region, a general economic aversion to emerging markets by foreign direct and financial investors and the overall decline in the worldwide economy.

We may not be able to compete effectively in the market for data center services. The market for data center services is extremely competitive and subject to rapid technological change. 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. Many of our existing competitors have greater market presence and financial and personnel resources than we do. Our competitors include Internet data centers operated by established communications carriers such as AT&T, Level 3, MCI and Qwest. We also compete with providers of data services centers, regional Bell operating companies that offer Internet access and information technology outsourcing firms. 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

	•	customer base.

Some of our competitors may be able to develop and expand their data center 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.

Potential customers may be unwilling to contract with us based on our financial condition. A customer’s decision to purchase services at a TerreNAP Center typically involves a significant commitment of resources and will be influenced by, among other things, the customer’s confidence in our financial strength.

We anticipate that an increasing portion of our revenues will be from contracts with agencies of the United States government, and uncertainties in government contracts could adversely affect our business. Generally, U.S. Government contracts are subject to oversight audits by government representatives, to profit and cost controls and limitations, and to provisions permitting modification or termination, in whole or in part, without prior notice, at the government’s convenience. In some cases, government contracts are subject to the uncertainties surrounding congressional appropriations or agency funding. Government contracts are subject to specific procurement regulations. Failure to comply with these regulations and requirements could lead to suspension or debarment from future government contracting for a period of time.

We are dependent on key personnel and the loss of these key personnel could have a material adverse effect on our success. We are highly dependent on the services of Manuel D. Medina, our Chairman. In an attempt to reduce costs, we have eliminated some management positions. 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. Therefore, our success also depends upon our ability to hire and retain additional skilled and experienced management personnel. Employment and retention of qualified personnel is important due to the competitive nature of our industry.

Our president, chairman and chief executive officer, cannot be removed without cause which could delay, defer or prevent change in control of our company or impede a merger, consolidation, takeover or other business combination. Under the terms of our agreement with Manuel D. Medina, our President, Chairman and Chief Executive Officer, 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. This could delay, defer or prevent change in control of our company or impede a merger, consolidation, takeover or other business combination that you, as a stockholder, may otherwise view favorably.

If the price of our shares remains low or our financial condition deteriorates, we may be delisted by the American Stock Exchange. Our common stock currently trades on the American Stock Exchange (Amex). The Amex requires companies to fulfill specific requirements in order for their shares to continue to be listed. Our securities may be considered for delisting if:


	(i) our financial condition and operating results appear to be unsatisfactory;

	(ii) it appears that the extent of public distribution or the aggregate market value of the securities has become so reduced as to make further dealings on the Amex inadvisable; or

	(iii) we have sustained losses which are so substantial in relation to our overall operations or our existing financial condition has become so impaired that it appears questionable whether we will be able to continue operations and/or meet our obligations as they mature.

For example, the Amex may consider suspension or delisting of a stock if the stock has been selling for a substantial period of time at a low price per share. Our common stock has been trading at relatively low prices for the past eighteen months and we have sustained net losses for the past three fiscal years. Therefore, our common stock is at risk of being delisted by the Amex. If our shares are delisted from the Amex, our stockholders could find it difficult to sell our stock. To date we have had no communication from the Amex regarding delisting. If our common stock is delisted from the Amex, 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 Amex. In addition, if our shares are no longer listed on the Amex or another national securities exchange in the United States, our shares may be subject to the “penny stock” regulations. If our common stock were to become subject to the penny stock rules it is likely that the price of our common stock would decline and that our stockholders would find it difficult to sell their shares. If our stock were to become delisted we could be in default of various agreements, including the Ocean Bank credit facility.

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.

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 on 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 may affect the fair market value of the fixed interest rate debt but do 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 operations outside of the U.S. and may be denominated in foreign currency. As a result, future operating results or cash flows could 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 conclude 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 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.

(a) Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and our Chief Financial Officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 (Exchange Act) Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this quarterly report, have concluded that our disclosure controls and procedures are effective based on their evaluation of these controls and procedures required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.

(b) Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

On January 20, 2004, we sold 36 shares of our Series I Convertible Preferred Stock to third party investors for a total purchase price equal to $900,000. Included in this sale was the sale of Warrants to purchase an aggregate of 252,000 shares of our common stock at an exercise price of $0.90 per share of common stock. The Warrants expire on January 20, 2009.

The Series I Convertible Preferred Stock accrues dividends at an annual rate equal to $2,000 per share until January 31, 2007, $2,500 per share until January 31, 2009 and thereafter $3,000 per share and has preference over dividends paid on common stock. The dividends are payable, in our sole discretion, in cash or shares of our common stock. Each share of Series I Convertible Preferred Stock is convertible at any time at the holder’s election into 33,334 shares of common stock, subject to certain adjustments in the event of stock dividends or other similar distributions, stock splits or other combinations or divisions of our common stock.

We may at any time after December 31, 2004 redeem any or all outstanding shares of Series I Convertible Preferred Stock at the original purchase price plus accrued but unpaid dividends. In addition, we may require the conversion of any portion of the outstanding Series I Convertible Preferred Stock or cancel any portion of the outstanding Warrants at any time the market price of our common stock is equal to or exceeds $2.00 for any 20 consecutive trading days.

Holders of Series I Convertible Preferred Stock are entitled to one vote for each share of common stock into which their shares of Series I Convertible Preferred Stock are convertible and shall vote with the common stock on all matters, except as otherwise required by law. The consent of holders of more than 50% of the outstanding shares of Series I Convertible Preferred Stock is required to alter or change the powers, preferences of special rights of the Series I Convertible Preferred Stock.

The offer and sale of the Series I Convertible Preferred Stock and the Warrants was exempt from the registration requirements of the Securities Act of 1933, as amended (the “Act”) as the Series I Convertible Preferred Stock and Warrants were sold to accredited investors pursuant to Regulation D as promulgated under the Act.

Sterling Financial Investment Group, Inc. acted as placement agent to assist in offering the shares of Series I Convertible Preferred Stock and the Warrants. In connection with the private placement, we paid to Sterling Financial Investment Group, Inc. a fee of $52,000. In addition, Sterling Financial Investment Group, Inc. was issued warrants to purchase an aggregate of 50,000 shares of our common stock at an exercise price equal to $0.71 per share and warrants to purchase an aggregate of 43,561 shares of our common stock at an exercise price equal to $0.90 per share. These warrants expire on January 20, 2009.

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

(b) No reports were filed on Form 8-K during the quarter ended December 31, 2003.

Pursuant to the requirements 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.


	By:	/s/ MANUEL D. MEDINA



	Manuel D. Medina
	Chairman of the Board, President
	and Chief Executive Officer (Principal
	Executive Officer)


	By:	/s/ JOSE A. SEGRERA



	Jose A. Segrera
	Executive Vice President and Chief
	Financial Officer (Principal Accounting
	Officer)

40 EX-4.1 3 g87176exv4w1.txt CERTIFICATE OF DESIGNATION EXHIBIT 4.1 TERREMARK WORLDWIDE, INC. SERIES I CONVERTIBLE PREFERRED STOCK CERTIFICATE OF DESIGNATIONS --------------------------------- It is hereby certified that: 1. The name of the corporation (hereinafter called the "CORPORATION" or the "COMPANY") is Terremark Worldwide, Inc., a Delaware corporation. 2. The Certificate of Incorporation of the Corporation authorizes the issuance of 10,000,000 shares of preferred stock, par value $.001 per share (the "PREFERRED STOCK") and expressly vests in the Board of Directors of the Corporation the authority provided therein to issue any or all of said shares in one or more series and by resolution or resolutions to establish the designation, number, full or limited voting powers, or the denial of voting powers, preferences and relative, participating, optional, and other special rights and the qualifications, limitations, restrictions, and other distinguishing characteristics of each series to be issued. 3. The Corporation has, as of the date hereof, authorized (i) 500,000,000 shares of common stock, par value par value $.001 per share (the "COMMON STOCK"), of which 310,531,127 were issued and outstanding as of January 15, 2004; and (ii) 10,000,000 shares of Preferred Stock, of which 20 shares of Series G Convertible Preferred Stock and 294 shares of Series H Convertible Preferred Stock are issued and outstanding as of January 15, 2004. 4. The Board of Directors of the Corporation, pursuant to the authority expressly vested in it as aforesaid, has adopted the following resolutions creating a Series I Convertible Preferred Stock, par value $.001 per share (the "SERIES I CONVERTIBLE PREFERRED STOCK"): RESOLVED, that 600 shares of the 10,000,000 authorized shares of Preferred Stock of the Corporation shall be designated Series I Convertible Preferred Stock, and shall possess the rights and privileges set forth below: 1. DESIGNATION. A total of 600 shares of the Corporation's Preferred Stock shall be designated as "SERIES I CONVERTIBLE PREFERRED STOCK." Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series I Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series I Convertible Preferred Stock. As used herein, the term "PREFERRED STOCK" used without reference to the Series I Convertible Preferred Stock means the shares of Series I Convertible Preferred Stock and the shares of each series of authorized Preferred Stock of the Corporation issued and designated from time to time by a resolution or resolutions of the Board of Directors, share for share alike and without distinction as to class or series, except as otherwise expressly provided for in 1 this Certificate of Designations or as the context otherwise requires. The Series I Convertible Preferred Stock shall rank: (i) prior to all of the Corporation's Common Stock as to distributions of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (all such distributions being referred to collectively as "DISTRIBUTIONS"); (ii) prior to the Series G Convertible Preferred Stock (the "SERIES G CONVERTIBLE PREFERRED STOCK") as to Distributions, (iii) prior to any class or series of capital stock of the Corporation hereafter created that does not specifically by its terms rank senior to or on parity with the Series I Preferred Stock of whatever subdivision (collectively, with the Common Stock and the Series G Convertible Preferred Stock, the "JUNIOR SECURITIES") as to Distributions; and (iv) junior to the Series H Convertible Preferred Stock (the "THE SERIES H CONVERTIBLE PREFERRED STOCK") and any Preferred Stock subsequently created specifically ranking senior to the Series I Preferred Stock ("SENIOR SECURITIES") as to Distributions. 2. DIVIDENDS. (a) Commencing on the date of issuance, the holders of record of shares of the Series I Convertible Preferred Stock shall be entitled to receive cumulative preferential dividends out of assets which are legally available for the payment of such dividends, payable, quarterly in arrears, on a cumulative basis, at an annual rate equal to (a) until January 31, 2007, $2,000.00 per share of Series I Convertible Preferred Stock, (b) on or after January 31, 2007 but before January 31, 2009, $2,500.00 per share of Series I Convertible Preferred Stock and (c) thereafter, $3,000.00 per share of Series I Convertible Preferred Stock (which amounts shall be subject to equitable adjustment whenever there shall occur after the date of issuance a stock dividend, stock split, combination, reorganization, recapitalization, reclassification or other similar event involving the Series I Convertible Preferred Stock). Dividends shall be payable quarterly on March 31, June 30, September 30 and December 31 of each year (each a "DIVIDEND PAYMENT DATE"), commencing on whichever Dividend Payment Date immediately follows the date of issuance; provided, however, that if any such day is a non-business day, the Dividend Payment Date will be the next business day. Each declared dividend shall be payable to holders of record as they appear at the close of business on the stock books of the Corporation on March 15, June 15, September 15 and December 15 of each year (each of such dates a "RECORD DATE"). Quarterly dividend periods (each a "DIVIDEND PERIOD") shall commence on and include the 1st day of January, April, July and October of each year and shall end on and include the day next preceding the next following Dividend Payment Date. No dividends shall be paid or declared, and no other distribution shall be made, on or with respect to the Junior Securities of the Corporation unless all accrued and unpaid dividends on the Series I Convertible Preferred Stock have first been paid. In the event dividends are paid on any share of Common Stock, an additional dividend shall be paid with respect to all outstanding shares of Series I Convertible Preferred Stock in an amount for each share of Series I Convertible Preferred Stock equal to or greater than the aggregate amount of such dividends for all shares of Common Stock into which each share of Series I Convertible Preferred Stock could then be converted. (b) ACCRUAL OF DIVIDENDS. Dividends shall be cumulative, without compounding, and shall accrue daily on each outstanding share of Series I Convertible Preferred Stock from the date of issue thereof. Dividends payable on the Series I Convertible Preferred Stock for any period less than a full year shall be computed on the basis of the actual number of days elapsed and a 365-day year. Dividends on the Series I Convertible Preferred Stock shall accrue whether or not the Corporation has earnings or profits, whether or not there are funds legally available for the payment of such dividends and whether or not 2 dividends are declared. The Corporation shall take all actions required or permitted under Delaware law to permit the payment of dividends on the Series I Convertible Preferred Stock. Upon the conversion of the Series I Convertible Preferred Stock into Common Stock of the Corporation, all cumulative dividends with respect to such converted shares shall be cancelled. In no event shall accrued but unpaid dividends accrue interest. (c) PAYMENT OF DIVIDENDS. At the election of the Corporation, in its sole discretion, the dividends to be paid under this Section may be paid in cash or in the form of shares of Common Stock. The number of shares of Common Stock issuable per share of Series I Convertible Preferred Stock upon such an election by the Corporation shall be equal to the quotient obtained by dividing (i) the amount of dividends declared per share of Series I Convertible Preferred Stock, BY (ii) the Market Price of the Common Stock multiplied by (A) ninety percent (90%) if the Market Price is equal to or less than $2.00 per share, (B) ninety-three percent (93%) if the Market Price is greater than $2.00 per share but less than $5.00 per share, or (C) ninety-five percent (95%) if the Market Price is greater than $5.00 per share. For the purpose of this Section, "MARKET PRICE" shall mean the weighted average of the daily closing sales prices of the Common Stock as quoted on the American Stock Exchange and reported in the WALL STREET JOURNAL for the twenty trading days ending on (and inclusive of) the business day immediately preceding the Dividend Payment Date. If the Company's Common Stock is no longer trading on the American Stock Exchange at the time such dividend is determined, the Market Price shall be determined by reference to the principal national securities exchange on which the shares of Common Stock are listed or admitted for trading and, if the shares of Common Stock are not listed or admitted for trading on a national securities exchange, by reference to the Nasdaq Stock Market, the Over-The-Counter Bulletin Board maintained by the National Association of Securities Dealers, Inc. or the over-the-counter market as, as reported by The National Quotation Bureau, Inc., or an equivalent generally accepted reporting service, whichever is the most appropriate. If the price of the Company's Common Stock is not quoted by any of these organizations then the Market Price shall be the fair market value of the shares of Common Stock on such day or days, as determined in good faith by the Board of Directors of the Company. If daily closing sales prices are not available, then Market Price shall be determined by the weighted average of the daily bid and asked prices quoted by such organizations for such twenty trading days. No fractional shares of Common Stock or scrip representing fractional shares shall be issued upon the payment in kind of the dividends pursuant to this Section. Instead of any fractional shares of Common Stock which would otherwise be issuable pursuant hereto, the Corporation shall round up to the next whole share of Common Stock issuable upon payment of the dividend. The determination as to whether any fractional shares of Common Stock shall be rounded up shall be made with respect to the aggregate number of shares of Common Stock being issued, not with respect to each share of Common Stock being issued. 3. CONVERSION RIGHTS. The holders of the Series I Convertible Preferred Stock shall have the following rights with respect to the conversion of such shares into shares of Common Stock: (a) GENERAL. Subject to and in compliance with the provisions of this Section 3, any or all shares of the Series I Convertible Preferred Stock may, at the option of the holder thereof, be converted at any time into fully-paid and non-assessable shares of Common Stock. The number of shares of Common Stock which a holder of Series I Convertible Preferred Stock shall be entitled to receive upon conversion shall be equal to the product obtained by 3 multiplying the Series I Applicable Conversion Rate (determined as provided in Section 3(b)) by the number of shares of Series I Convertible Preferred Stock being converted at any time. (b) APPLICABLE CONVERSION RATE. The conversion rate in effect at any time for the Series I Convertible Preferred Stock (the "SERIES I APPLICABLE CONVERSION RATE") shall be the quotient obtained by dividing $25,000 plus any accrued and unpaid dividends by the Series I Applicable Conversion Value. The "SERIES I APPLICABLE CONVERSION VALUE" in effect from time to time, except as adjusted in accordance with Section 3(c) hereof, shall be $0.75. (c) ADJUSTMENT TO SERIES I APPLICABLE CONVERSION VALUE UPON EXTRAORDINARY COMMON STOCK EVENT. Upon the happening of an Extraordinary Common Stock Event (as hereinafter defined), the Series I Applicable Conversion Value shall, simultaneously with the happening of such Extraordinary Common Stock Event, be adjusted by multiplying the Series I Applicable Conversion Value by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such Extraordinary Common Stock Event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such Extraordinary Common Stock Event, and the product so obtained shall thereafter be the Series I Applicable Conversion Value. The Series I Applicable Conversion Value, as so adjusted, shall be readjusted in the same manner upon the happening of any successive Extraordinary Common Stock Event or Events. An "EXTRAORDINARY COMMON STOCK EVENT" shall mean (i) the issue of additional shares of Common Stock as a dividend or other distribution on outstanding shares of Common Stock, (ii) a subdivision of outstanding shares of Common Stock into a greater number of shares of Common Stock, or (iii) a combination or reverse stock split of outstanding shares of Common Stock into a smaller number of shares of Common Stock. (d) MANDATORY CONVERSION DUE TO PRICE OF COMMON STOCK. (i) MANDATORY CONVERSION OF SERIES I CONVERTIBLE PREFERRED STOCK. At any time the Market Price determined as set forth in Section 2(c) above is equal to or exceeds $2.00 for ANY twenty (20) consecutive trading days, the Company may, at its option, require the conversion of all, or a portion of, the Series I Convertible Preferred Stock into the number of shares of Common Stock into which such shares of Series I Convertible Preferred Stock are then convertible pursuant to Section 3 hereof on the close of business on the date of notice by the Company thereof (the "MANDATORY CONVERSION DATE"), without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent. Such conversion shall be deemed to have been effected on the Mandatory Conversion Date. (ii) SURRENDER OF CERTIFICATES UPON MANDATORY CONVERSION. Upon the occurrence of the conversion events specified in the preceding paragraph (i), the holders of the Series I Convertible Preferred Stock shall, upon notice from the Corporation, surrender the certificates representing such shares at the office of the Corporation or of its transfer agent for the Common Stock. Thereupon, there shall be issued and delivered to such holder a certificate or certificates for the number of shares of Common Stock into which the shares of Series I Convertible Preferred Stock so surrendered were convertible on the date 4 on which such conversion occurred. The Corporation shall not be obligated to issue such certificates unless certificates evidencing the shares of Series I Convertible Preferred Stock being converted are either delivered to the Corporation or any such transfer agent, or the holder notifies the Corporation that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection therewith. (e) CAPITAL REORGANIZATION OR RECLASSIFICATION. If the Common Stock issuable upon the conversion of the Series I Convertible Preferred Stock shall be changed into the same or different number of shares of any class or classes of capital stock, whether by capital reorganization, recapitalization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend provided for elsewhere in this Section 3, or a merger, consolidation or sale of all or substantially all of the Corporation's capital stock or assets to any other person), then and in each such event the holder of each share of Series I Convertible Preferred Stock shall have the right thereafter to convert such share into the kind and amount of shares of capital stock and other securities and property receivable upon such reorganization, recapitalization, reclassification or other change by the holders of the number of shares of Common Stock into which such shares of Series I Convertible Preferred Stock might have been converted immediately prior to such reorganization, recapitalization, reclassification or change, all subject to further adjustment as provided herein. (f) MERGER, CONSOLIDATION OR SALE OF ASSETS. Subject to the provisions of Section 4(d) hereof, if at any time or from time to time there shall be a merger or consolidation of the Corporation with or into another corporation (other than a merger or reorganization involving only a change in the state of incorporation of the Corporation), or the sale of all or substantially all of the Corporation's capital stock or assets to any other person, then, as a part of such reorganization, merger, or consolidation or sale, and provision shall be made so that the holders of the Series I Convertible Preferred Stock shall thereafter be entitled to receive upon conversion of the Series I Convertible Preferred Stock the number of shares of stock or other securities or property of the Corporation, or of the successor corporation resulting from such merger or consolidation, to which such holder would have been entitled if such holder had converted its shares of Series I Convertible Preferred Stock immediately prior to such capital reorganization, merger, consolidation or sale. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 3 to the end that the provisions of this Section 3 (including adjustment of the Series I Applicable Conversion Value then in effect and the number of shares of Common Stock or other securities issuable upon conversion of such shares of Series I Convertible Preferred Stock) shall be applicable after that event in as nearly equivalent a manner as may be practicable. (g) CERTIFICATE AS TO ADJUSTMENTS; NOTICE BY CORPORATION. In each case of an adjustment or readjustment of the Series I Applicable Conversion Rate, the Corporation at its expense will furnish each holder of Series I Convertible Preferred Stock with a certificate prepared by the Treasurer or Chief Financial Officer of the Corporation, showing such adjustment or readjustment, and stating in detail the facts upon which such adjustment or readjustment is based. 5 (h) EXERCISE OF CONVERSION PRIVILEGE. To exercise its conversion privilege, a holder of Series I Convertible Preferred Stock shall surrender the certificate or certificates representing the shares being converted to the Corporation at its principal office, and shall give written notice to the Corporation at that office that such holder elects to convert such shares. Such notice shall also state the name or names (with address or addresses) in which the certificate or certificates for shares of Common Stock issuable upon such conversion shall be issued. The certificate or certificates for shares of Series I Convertible Preferred Stock surrendered for conversion shall be accompanied by proper assignment thereof to the Corporation or in blank. The date when such written notice is received by the Corporation, together with the certificate or certificates representing the shares of Series I Convertible Preferred Stock being converted, shall be the "CONVERSION DATE." As promptly as practicable after the Conversion Date, the Corporation shall issue and shall deliver to the holder of the shares of Series I Convertible Preferred Stock being converted, or on its written order, such certificate or certificates as it may request for the number of whole shares of Common Stock issuable upon the conversion of such shares of Series I Convertible Preferred Stock in accordance with the provisions of this Section 3, rounded up to the nearest whole share as provided in Section 3(i), in respect of any fraction of a share of Common Stock issuable upon such conversion. Such conversion shall be deemed to have been effected immediately prior to the close of business on the Conversion Date, and at such time the rights of the holder as holder of the converted shares of Series I Convertible Preferred Stock shall cease and the person(s) in whose name(s) any certificate(s) for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares of Common Stock represented thereby. (i) NO ISSUANCE OF FRACTIONAL SHARES. No fractional shares of Common Stock or scrip representing fractional shares shall be issued upon the conversion of shares of Series I Convertible Preferred Stock. Instead of any fractional shares of Common Stock which would otherwise be issuable upon conversion of Series I Convertible Preferred Stock, the Corporation shall round up to the next whole share of Common Stock issuable upon the conversion of shares of Series I Convertible Preferred Stock. The determination as to whether any fractional shares of Common Stock shall be rounded up shall be made with respect to the aggregate number of shares of Series I Convertible Preferred Stock being converted at any one time by any holder thereof, not with respect to each share of Series I Convertible Preferred Stock being converted. (j) PARTIAL CONVERSION. In the event some but not all of the shares of Series I Convertible Preferred Stock represented by a certificate(s) surrendered by a holder are converted, the Corporation shall execute and deliver to or on the order of the holder, at the expense of the Corporation, a new certificate representing the number of shares of Series I Convertible Preferred Stock which were not converted. (k) RESERVATION OF COMMON STOCK. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series I Convertible Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series I Convertible Preferred Stock (including any 6 shares of Series I Convertible Preferred Stock represented by any warrants, options, subscription or purchase rights for Series I Convertible Preferred Stock), and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series I Convertible Preferred Stock (including any shares of Series I Convertible Preferred Stock represented by any warrants, options, subscriptions or purchase rights for such Preferred Stock), the Corporation shall take such action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. (l) NO REISSUANCE OF PREFERRED STOCK. No share or shares of Series I Convertible Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be cancelled, retired and eliminated from the shares which the Corporation shall be authorized to issue. Under such circumstances, the Corporation shall from time to time take such appropriate corporate action as may be necessary to reduce the authorized number of shares of the Series I Convertible Preferred Stock. 4. LIQUIDATION, DISSOLUTION OR WINDING UP. (a) TREATMENT AT SALE, LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, before any distribution or payment is made to any holders of any Junior Securities and subject to the liquidation rights and preferences of any Senior Securities, then the holders of shares of Series I Convertible Preferred Stock shall be entitled to be paid first out of the assets of the Corporation available for distribution to holders of the Corporation's capital stock whether such assets are capital, surplus or earnings, an amount equal to $25,000 per share of Series I Convertible Preferred Stock (which amount shall be subject to equitable adjustment whenever there shall occur a stock dividend, stock split, combination, reorganization, recapitalization, reclassification or other similar event involving the Series I Convertible Preferred Stock) PLUS any dividends accrued or declared but unpaid on such shares (such amount, as so determined, is referred to herein as the "SERIES I LIQUIDATION Value" with respect to such shares). (b) PRO-RATA PARTICIPATION. After payment has been made to the holders of the Series I Convertible Preferred Stock and any series of Preferred Stock designated to be on a parity with respect to payment on liquidation with the Series I Convertible Preferred Stock of the full liquidation preference to which such holders shall be entitled as aforesaid, the remaining assets shall be distributed pro-rata among the holders of Junior Securities in accordance with their respective liquidation preferences. (c) INSUFFICIENT FUNDS. If upon such liquidation, dissolution or winding up, the assets or surplus funds of the Corporation to be distributed to the holders of shares of Series I Convertible Preferred Stock and any other then-outstanding shares of the Corporation's capital stock ranking on a parity with respect to payment on liquidation with the Series I Convertible Preferred Stock (such shares being referred to herein as the "SERIES I PARITY STOCK") shall be insufficient to permit payment to such respective holders of the full Series I Liquidation Value and all other preferential amounts payable with respect to the Series I Convertible Preferred Stock and such Series I Parity 7 Stock, then the assets available for payment or distribution to such holders shall be allocated among the holders of the Series I Convertible Preferred Stock and such Series I Parity Stock, pro rata, in proportion to the full respective preferential amounts to which the Series I Convertible Preferred Stock and such Series I Parity Stock are each entitled. (d) CERTAIN TRANSACTIONS TREATED AS LIQUIDATION. For purposes of this Section 4, (i) any acquisition of the Corporation by means of merger or other form of corporate reorganization or consolidation with or into another corporation in which outstanding shares of the Corporation, including shares of Series I Convertible Preferred Stock, are to be exchanged for securities or other consideration issued, or caused to be issued, by the other corporation or its subsidiary and, as a result of which transaction, the shareholders of the Corporation own less than 50% of the voting power of the surviving entity, or (ii) a sale, transfer or lease (other than a pledge or grant of a security interest to a bona fide lender) of all or substantially all of the assets of the Corporation (other than to a wholly owned subsidiary or parent of the Corporation) (collectively, the transactions referred to in clauses (i) and (ii) are referred to herein as "SALE TRANSACTIONS"), at the election of any holder of outstanding shares of Series I Convertible Preferred Stock, shall with respect to the Series I Convertible Preferred Stock held by such holder, be treated as a liquidation, dissolution or winding up of the Corporation and entitle such holder of Series I Convertible Preferred Stock to receive the Series I Liquidation Value for each share of Series I Convertible Preferred Stock held by such holder, subject to the liquidation rights and preferences of any Senior Securities. The Corporation will provide the holders of Series I Convertible Preferred Stock written notice of any Sale Transaction that would be treated as a liquidation, dissolution or winding up pursuant to this Section 4(d) at least fifteen (15) business days prior to the earlier of the stockholders' vote relating to such Sale Transaction or the closing of such Sale Transaction, and such holders shall have thirty (30) days from the date of such notice to make the election provided for in this Section 4(d). (e) DISTRIBUTIONS OF PROPERTY. Whenever the distribution provided for in this Section 4 shall be payable in property other than cash, the value of such distribution shall be the fair market value of such property as determined in good faith by the Board of Directors, unless the holders of 25% or more of the then outstanding shares of Series I Convertible Preferred Stock request, in writing, that an independent appraiser perform such valuation, then by an independent appraiser selected by the Board of Directors and reasonably acceptable to the holders of 25% or more of the then outstanding shares of Series I Convertible Preferred Stock. 5. REDEMPTIONS. (a) REDEMPTION BY THE CORPORATION. At any time after December 31, 2004, the Corporation shall have the option to, upon written notice pursuant to Section 5(d) below, redeem, on the date (the "COMPANY REDEMPTION DATE") specified in such notice, any or all of the outstanding shares of Series I Convertible Preferred Stock which have not been converted into shares of Common Stock within thirty (30) days of receipt of such notice by holders of the Series I Convertible Preferred Stock at a price per share equal to the Redemption Price. The "REDEMPTION PRICE" for each share of Series I Convertible Preferred Stock redeemed pursuant to this Section 5(a) shall initially be $25,000 per share (the "ISSUE PRICE") in cash PLUS all accrued and/or declared but unpaid dividends on such shares up to and including the date fixed for redemption. The Redemption Price set forth in this Section 5 shall be subject to equitable 8 adjustment with respect to the Series I Convertible Preferred Stock whenever there shall occur a stock split, stock dividend, combination, recapitalization, reclassification or other similar event involving a change in the Series I Convertible Preferred Stock. (b) REDEMPTION PROPORTIONATE. Each redemption of Series I Convertible Preferred Stock pursuant to this Section 5 shall be made so that the number of shares of Series I Convertible Preferred Stock to be redeemed from each registered owner shall be on a pro rata basis according to the respective liquidation preferences of shares of Series I Convertible Preferred Stock which each such holder of Series I Convertible Preferred Stock owns of record as of the applicable Redemption Date. (c) REDEMPTION NOTICE. At least 35 days prior to the Company Redemption Date, written notice (hereinafter referred to as the "REDEMPTION NOTICE") shall be mailed, first class or certified mail, postage prepaid, by the Corporation to each holder of record of Series I Convertible Preferred Stock which are to be redeemed, as its address shown on the records of the Corporation. The Redemption Notice shall contain the following information: (i) the number of shares of Series I Convertible Preferred Stock held by the holder which are to be redeemed by the Corporation; (ii) the Company Redemption Date and the Redemption Price; and (iii) that the holder is to surrender to the Corporation, at the place designated therein, its certificate or certificates representing the Series I Convertible Preferred Stock to be redeemed. (d) SURRENDER OF CERTIFICATES. Each holder of Series I Convertible Preferred Stock shall surrender the certificate(s) representing such shares to the Corporation at the place designated in the Redemption Notice, and on the Company Redemption Date. The Redemption Price for such shares as set forth in this Section 5 shall be paid to the order of the person whose name appears on such certificate(s) and each surrendered certificate shall be canceled and retired. In the event some but not all of the Series I Convertible Preferred Stock represented by a certificate(s) surrendered by a holder are being redeemed, the Corporation shall execute and deliver to or on the order of the holder, at the expense of the Corporation, a new certificate representing the number of shares of Series I Convertible Preferred Stock which were not redeemed. The rights of redemption of the holders of Series I Convertible Preferred Stock are subject to the rights and preferences of any class or series of preferred stock that may be designated to be senior to, or on parity with, the Series I Convertible Preferred Stock with respect to rights of redemption. (e) DIVIDENDS AFTER REDEMPTION. From and after the Company Redemption Date, as the case may be, dividends shall cease to accrue on the shares of Series I Convertible Preferred Stock subject to redemption and no such shares shall be entitled to the conversion provisions set forth in Section 3 hereof; PROVIDED; HOWEVER, that if any shares of Series I Convertible Preferred 9 Stock called for redemption shall not be paid upon surrender of the relevant stock certificate for redemption, then dividends shall accrue on such shares from the Company Redemption Date, as the case may be, until the Redemption Price therefor is paid. 6. VOTING POWER. Except as otherwise expressly provided in Section 9 hereof or as otherwise required by law, each holder of Series I Convertible Preferred Stock shall be entitled to vote on all matters and shall be entitled to that number of votes equal to the number of whole shares of Common Stock into which such holder's respective shares of Series I Convertible Preferred Stock could then be converted, pursuant to the provisions of Section 3 hereof, at the record date for the determination of stockholders entitled to vote on such matter or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is solicited. Except as otherwise expressly provided in Section 9 hereof or as otherwise required by law, the holders of shares of Series I Convertible Preferred Stock and Common Stock shall vote together as a single class on all matters. 7. REGISTRATION OF TRANSFER. The Corporation will keep at its principal office a register for the registration of shares of Series I Convertible Preferred Stock. Upon the surrender of any certificate representing shares of Series I Convertible Preferred Stock at such place, the Corporation will, at the request of the record holders of such certificate, execute and deliver (at the Corporation's expense) a new certificate or certificates in exchange therefor representing the aggregate number of shares of Series I Convertible Preferred Stock represented by the surrendered certificate. Each such new certificate will be registered in such name and will represent such number of shares of Series I Convertible Preferred Stock as is required by the holder of the surrendered certificate and will be substantially identical in form to the surrendered certificate. 8. REPLACEMENT. Upon receipt of evidence reasonably satisfactory to the Corporation of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing shares of Series I Convertible Preferred Stock, and in the case of any such loss, theft or destruction, upon receipt of an unsecured indemnity from the holder reasonably satisfactory to the Corporation or, in the case of such mutilation upon surrender of such certificate, the Corporation will (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares of Series I Convertible Preferred Stock represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate. 9. RESTRICTIONS AND LIMITATIONS ON CORPORATE ACTION AND AMENDMENTS TO CHARTER. The Corporation shall not take any corporate action without the approval by vote or written consent of the holders of more than 50.0% of the then outstanding shares of Series I Convertible Preferred Stock, if such corporate action or amendment would: (i) alter or change the powers, preferences or special rights of the Series I Convertible Preferred Stock; or (ii) amend any provisions of this Section 9. 10 10. NO IMPAIRMENT. The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of capital stock or assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Series I Convertible Preferred Stock set forth herein, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holders of the Series I Convertible Preferred Stock against impairment. Without limiting the generality of the foregoing, the Corporation (a) will not increase the par value of any shares of stock receivable on the conversion of the Series I Convertible Preferred Stock above the amount payable therefor on such conversion, and (b) will take all such action as may be necessary or appropriate in order that the Corporation may validly and legally issue fully paid and nonassessable shares of stock on the conversion of all Series I Convertible Preferred Stock from time to time outstanding. 11. NOTICES OF RECORD DATE. In the event of: (a) any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of capital stock of any class or any other securities or property, or to receive any other right, or (b) any capital reorganization of the Corporation, any reclassification or recapitalization of the capital stock of the Corporation, any merger or consolidation of the Corporation, or any transfer of all or substantially all of the assets of the Corporation to any other corporation, or any other entity or person, or (c) any voluntary or involuntary dissolution, liquidation or winding up of the Corporation, then and in each such event the Corporation shall mail or cause to be mailed to each holder of Series I Convertible Preferred Stock a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right and a description of such dividend, distribution or right, (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding up is expected to become effective, and (iii) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding up. Such notice shall be mailed by first class mail, postage prepaid, at least fifteen (15) days prior to the earlier of (1) the date specified in such notice on which such record is to be taken and (2) the date on which such action is to be taken. 11 12. NOTICES. Except as otherwise expressly provided, all notices referred to herein will be in writing and will be deemed to have been duly given (i) on the date of service if served personally on the party to whom notice is to be given, (ii) on the date of transmittal of services via telecopy to the party to whom notice is to be given (with a confirming copy being delivered within 24 hours thereafter), (iii) on the third day after mailing if mailed to the party to whom notice is to be given, by first class mail, registered or certified, postage prepaid, or (iv) on the date of delivery if sent via overnight courier providing a receipt and in each case properly addressed (x) to the Corporation, at its principal executive offices and (y) to any stockholder, at such holder's address as it appears in the stock records of the Corporation (unless otherwise indicated in writing by any such holder). FURTHER RESOLVED, that the statements contained in the foregoing resolutions creating and designating the said Series I Convertible Preferred Stock and fixing the number, powers, preferences and relative, optional, participating, and other special rights and the qualifications, limitations, restrictions, and other distinguishing characteristics thereof shall, upon the effective date of said series, be deemed to be included in and be a part of the Certificate of Incorporation of the Corporation pursuant to the laws of the State of Delaware. Signed on January 15, 2004 By: /s/ Manuel D. Medina ------------------------------------------ Manuel D. Medina President, Chief Executive Officer, and Chairman of the Board of Directors By: /s/ Jose A. Segrera ------------------------------------------ Jose A. Segrera Executive Vice President and Chief Financial Officer 12 EX-31.1 4 g87176exv31w1.htm SEC. 302 CERTIFICATION - CHIEF EXECUTIVE OFFICER Sec. 302 Certification - Chief Executive Officer

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

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) for the Registrant and we have:


	(a) designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

	(b) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

	(c) disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

	(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.


	/s/ MANUEL D. MEDINA

	Manuel D. Medina
	Chairman, President and Chief Executive Officer,


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended December 31, 2003

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to


Delaware		52-1981922
(State or Other Jurisdiction of		(IRS Employer
Incorporation or Organization)		Identification No.)


		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
	Item 3. Quantitative and Qualitative Disclosures About Market Risk.
	Item 4. Controls and Procedures.
PART II. OTHER INFORMATION
	Item 2. Changes in Securities and Use of Proceeds.
	Item 6. Exhibits and Report on Form 8-K.
SIGNATURES
Certificate of Designation
Sec. 302 Certification - Chief Executive Officer
Sec. 302 Certification - Chief Financial Officer
Sec. 906 Certification - Chief Executive Officer
Sec. 906 Certification - Chief Financial Officer


		Page

PART I FINANCIAL INFORMATION
Item 1.	Financial Statements		1
	Condensed Consolidated Balance Sheets as of December 31, 2003 (unaudited) and March 31, 2003		2
	Condensed Consolidated Statements of Operations for the Three and Nine Months ended December 31, 2003 and 2002 (unaudited)		3
	Condensed Consolidated Statement of Changes in Stockholders’ Deficit for the Nine Months ended December 31, 2003 (unaudited)		4
	Condensed Consolidated Statements of Cash Flows for the Nine Months ended December 31, 2003 and 2002 (unaudited)		5
	Notes to Condensed Consolidated Financial Statements (unaudited)		6
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
Item 2.	Changes in Securities and Use of Proceeds		38
Item 6.	Exhibits and Report on Form 8-K		39
Signatures			40


			December 31,			March 31,
			2003			2003

			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	3,039,291		$	1,408,190
	Accounts receivable, net of allowance for doubtful accounts of $136,108 and $120,340			1,114,210			494,736
	Contracts receivable			106,217			29,204
	Other assets			1,037,203			—

		Total current assets		5,296,921			1,932,130
	Investment in unconsolidated entities, net			823,789			827,667
	Restricted cash			789,476			768,905
	Property and equipment, net			52,899,847			54,482,964
	Other assets			821,694			1,589,977
	Goodwill			9,999,870			9,999,870

		Total assets	$	70,631,597		$	69,601,513


LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
	Current portion of notes payable (includes $4,160,779 and $138,000 due to related parties)		$	9,029,914		$	1,464,963
	Construction payables			1,001,102			22,012,162
	Accounts payable and accrued expenses			5,914,054			8,434,373
	Current portion of capital lease obligations			2,347,715			2,477,467
	Interest payable			1,712,968			4,492,805
	Net liabilities of discontinued operations			446,911			1,199,531
	Convertible debt			2,750,000			900,000

		Total current liabilities		23,202,664			40,981,301
	Notes payable, less current portion (includes $31,715,472 and $4,100,000 due to related parties)			31,843,286			56,174,938
	Convertible debt, with a face value of 35,498,000 and 14,005,000 (includes $3,785,000 and $3,450,000 due to related parties)			31,878,953			14,005,000
	Deferred rent			5,549,552			2,610,623
	Capital lease obligations, less current portion			359,964			762,470
	Deferred revenue			5,097,620			971,150
	Series H redeemable convertible preferred stock: $.001 par value, 294 shares issued and outstanding			579,220			556,729

		Total liabilities		98,511,259			116,062,211

	Commitments and contingencies
	Series G convertible preferred stock: $.001 par value, 20 shares issued and outstanding			1			1
	Common stock: $.001 par value, 500,000,000 shares authorized; 310,531,127 and 256,276,864 shares issued			310,531			256,277
	Paid in capital			204,244,815			169,204,208
	Accumulated deficit			(231,353,469	)		(214,324,140	)
	Common stock warrants			2,373,085			1,857,581
	Common stock options			1,545,375			1,545,375
	Note receivable — related party (Note 5)			(5,000,000	)		(5,000,000	)

		Total stockholders’ deficit		(27,879,662	)		(46,460,698	)

		Total liabilities and stockholders’ deficit	$	70,631,597		$	69,601,513



			For the Nine Months						For the Three Months
			Ended December 31,						Ended December 31,

			2003			2002			2003			2002


			(Unaudited)						(Unaudited)
Revenues
	Data center		$	11,834,820		$	8,131,306		$	4,591,996		$	2,557,260
	Development, commission and construction fees			41,081			171,441			—			94,621
	Management fees			150,800			151,902			43,730			34,326
	Construction contracts			328,336			3,253,356			229,364			146,505

		Operating revenues		12,355,037			11,708,005			4,865,090			2,832,712

Expenses
	Data center operations, excluding depreciation			11,170,512			8,630,949			4,664,026			2,767,525
	Construction contract expenses, excluding depreciation			337,613			2,905,335			228,957			134,021
	General and administrative			10,325,328			9,581,708			2,855,910			3,103,165
	Sales and marketing			2,348,849			2,968,036			815,539			989,034
	Depreciation and amortization			3,570,569			3,905,602			1,218,886			1,340,381
	Impairment of long-lived assets			—			1,350,000			—			1,000,000

		Operating expenses		27,752,871			29,341,630			9,783,318			9,334,126

	Loss from operations			(15,397,834	)		(17,633,625	)		(4,918,228	)		(6,501,414	)

Other income (expense)
	Gain on debt restructuring			8,475,000			—			—			—
	Inducement on debt conversion			—			(4,871,245	)		—			(4,871,245	)
	Interest expense			(10,476,408	)		(9,106,006	)		(4,265,856	)		(2,832,324	)
	Dividend on preferred stock			(22,491	)		(22,491	)		(7,497	)		(7,497	)
	Interest income			100,615			88,663			44,886			36,312
	Other			291,789			(24,462	)		(5,043	)		(2,385	)

		Total other income (expenses)		(1,631,495	)		(13,935,541	)		(4,233,510	)		(7,677,139	)

	Loss before income taxes			(17,029,329	)		(31,569,166	)		(9,151,738	)		(14,178,553	)
Income taxes				—			—			—			—

Net loss			$	(17,029,329	)	$	(31,569,166	)	$	(9,151,738	)	$	(14,178,553	)

Basic and diluted net loss per common share:			$	(0.06	)	$	(0.14	)	$	(0.03	)	$	(0.06	)

	Weighted average common shares outstanding			303,030,798			220,864,593			308,875,973			232,737,770



	Stockholders’ Deficit (Unaudited)


			Common Stock
			Par Value $.001
							Additional			Common			Common		Note
	Preferred		Issued				Paid-in			Stock			Stock		Receivable			Retained
	Stock		Shares		Amount		Capital			Warrants			Options		Related Party			Deficit

Balance at March 31, 2003		1		256,276,864	$	256,277	$	169,204,208		$	1,857,581		$	1,545,375	$	(5,000,000	)	$	(214,324,140	)

Conversion of debt		—		50,537,746		50,538		23,752,772			—			—		—			—
Exercise of stock options		—		55,001		55		28,565			—			—		—			—
Warrants issued		—		—		—		(177,750	)		546,050			—		—			—
Exercise of warrants		—		9,500		9		8,521			(3,971	)		—		—			—
Warrants expired		—		—		—		26,575			(26,575	)		—		—			—
Beneficial conversion feature on issuance of convertible debentures		—		—		—		9,500,000			—			—		—			—
Stock options issued								1,905,576
Common stock issued				3,652,016		3,652		(3,652	)
Net loss		—		—		—		—			—			—		—			(17,029,329	)

Balance at December 31, 2003		1		310,531,127	$	310,531	$	204,244,815		$	2,373,085		$	1,545,375	$	(5,000,000	)	$	(231,353,469	)



					For the Nine Months Ended
					December 31,

					2003			2002


					Unaudited
Cash flows from operating activities:
	Net loss				$	(17,029,329	)	$	(31,569,166	)
	Adjustments to reconcile net loss to net cash used in operating activities
		Depreciation and amortization of long-lived assets				3,570,569			3,905,602
		Amortization of beneficial conversion feature on issuance of convertible debentures				5,880,953			—
		Amortization of loan costs and other				110,002			1,269,010
		Provision for bad debt				167,135			137,068
		Impairment of long-lived assets				—			1,350,000
		Stock-based compensation				1,905,576			—
		Inducement on debt conversion expense				—			4,871,245
		Gain on debt restructuring				(8,475,000	)		—
		(Increase) decrease in:
			Accounts receivable			(786,609	)		207,941
			Contracts receivable			(77,013	)		1,293,567
			Other assets			(156,953	)		(437,576	)
		Increase (decrease) in:
			Accounts payable and accrued expenses			(2,520,317	)		92,348
			Interest payable			(1,773,871	)		1,565,389
			Deferred revenue			4,126,470			100,503
			Net assets/liabilities of discontinued operations			(752,620	)		181,917
			Deferred rent			2,938,929			367,928

				Net cash used in operating activities		(12,872,078	)		(16,664,224	)

Cash flows from investing activities:
	Restricted cash					(20,571	)		(11,332	)
	Purchase of property and equipment					(1,818,632	)		(916,944	)
	Investment in unconsolidated entities					3,878			(194,265	)

				Net cash used in investing activities		(1,835,325	)		(1,122,541	)

Cash flows from financing activities:
	(Payments) borrowings of construction payables					591,283			(3,274,388	)
	New borrowings					750,000			7,181,220
	Payments on loans					(2,629,358	)		(2,055,999	)
	Issuance of convertible debt					19,550,000			—
	Payments on convertible debt					(1,407,000	)		—
	Payments under capital lease obligations					(532,258	)		(744,412	)
	Exercise of stock options and warrants					15,837			9,180
	Sale of common stock and warrants					—			16,947,789

				Net cash provided by financing activities		16,338,504			18,063,390

				Net increase in cash		1,631,101			276,625
Cash and cash equivalents at beginning of period						1,408,190			283,078

Cash and cash equivalents at end of period					$	3,039,291		$	559,703


	2003		2002

Risk-free rate		2.14% - 3.50%		3.00% - 4.84%
Volatility		155%		135% - 155%
Expected life		5 years		5 years
Expected dividends		0%		0%



		For the Nine Months Ended				For the Three Months Ended
		December 31,				December 31,

		2003		2002		2003		2002

Services		$	10,760,758	$	7,040,668	$	4,301,630	$	2,557,260
Connectivity solutions			652,296		—		160,136		—
Contract termination fee			421,766		1,090,638		130,230		—

	Data center revenue	$	11,834,820	$	8,131,306	$	4,591,996	$	2,557,260


Interest				Due		Weighted Average
Rate		Principal		Date		Conversion Price

	13.125%	$	2,750,000		August 30, 2004	$	0.61
	13%	$	10,500,000		December 31, 2005	$	1.80
	10%	$	25,000,000		April 30, 2006	$	0.50


								Estimated
		No. of Shares		Exercise				Fair Value
Issuance Date		Able to Purchase		Price		Expiration Date		at Issuance

October 2003			50,000	$	0.73		October 2008	$	33,700.00
July 2003			100,000		0.62		July 2008		114,400
June 2003			300,000		0.50		June 2006		220,200
June 2003			250,000		0.75		June 2006		177,750
March 2003			300,000		0.75		March 2007		110,400
December 2002			300,000		0.75		March 2007		110,400
October 2002			1,200,000		0.75		October 2004		90,000
July 2002			100,000		0.54		July 2005		20,900
April 2002			600,000		0.40		March 2007		220,800
June 2001			13,000		1.72		June 2011		22,490
January 2002			9,500		0.48		June 2011		3,971
March 2001			300,000		2.00		March 2006		352,200
November 2000			250,000		2.76		November 2008		394,000
April 2000			600,000		1.25		March 2004		501,874

	Total		4,372,500					$	2,373,085


	Data Center			Real Estate
For the Nine Months Ended December 31,	Operations			Services			Total

2003
Revenue	$	11,834,821		$	520,216		$	12,355,037
Loss from operations		(15,069,842	)		(327,992	)		(15,397,834	)
Net loss		(16,701,680	)		(327,649	)		(17,029,329	)
2002
Revenue	$	8,131,306		$	3,576,699		$	11,708,005
Loss from operations		(17,518,725	)		(114,900	)		(17,633,625	)
Net loss (income)		(31,463,708	)		(105,458	)		(31,569,166	)
Assets, as of
December 31, 2003	$	70,533,893		$	97,704		$	70,631,597
March 31, 2003	$	69,303,443		$	298,070		$	69,601,513


Item 2.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations.*


	*Results of Operations for the Three Months Ended December 31, 2003 as Compared to the Three Months Ended December 31, 2002*


	*Use of Estimates*


	*Reclassifications*


	*Significant Concentrations*


	*Stock-Based Compensation*



		For the
		Three Months
		Ended
		December 31,

		2003			2002

Revenue
	U.S		99	%		96	%
	Outside U.S		1	%		4	%

			100	%		100	%

	Data Center		94	%		90	%
	Technology Construction Work		6	%		9	%
	Property and Construction Management		0	%		1	%

			100	%		100	%


	*Results of Operations for the Nine Months Ended December 31, 2003 as Compared to the Nine Months Ended December 31, 2002*



	2003


	For the Nine Months Ended December
	31,


					2002

Colocation & exchange point services	$	9,146,644	85	%	$	5,843,754	83	%
Managed & professional services		1,614,114	15	%		1,196,914	17	%

	$	10,760,758	100	%	$	7,040,668	100	%


	December 31,
	2003

Notes payable to unrelated parties:
Unsecured notes payable to SBP Investments, Inc. and Caerulea, Ltd. Principal and interest accruing at 10% due April 1, 2004	$	2,800,000
Unsecured note payable to Slivovitz Design Limited, Inc., interest accrues at 15%. Principal and interest due on April 1, 2004		1,000,000
Unsecured notes payable to various individuals, interest ranges from 10% to 15%. Principal and interest due between March 2004 and March 2005		829,771
Note payable to TotalBank, collateralized by certain assets of a director and certain of our shareholders. Interest accrues at 1% over prime, due on March 31, 2004		367,178

Total notes payable to unrelated parties		4,996,949


	December 31,
	2003

Notes payable to related parties:
Note payable to Ocean Bank, collateralized by substantially all assets of the NAP of the Americas and a personal guaranty of the Chief Executive Officer. Amount includes $5.3 million of gain on debt restructuring to be amortized monthly to reduce interest expense over the life of the remaining debt	$	33,643,591
Unsecured note payable to Centre Credit Corporation, a corporation controlled by a shareholder, interest accrues at 15%. Principal and interest due on April 1, 2004		1,600,000
Unsecured notes payable to certain of our executives and directors and corporations in which related parties have an interest, interest accrues at 13%. Principal and interest is due April 1, 2004		632,660
Total notes payable to related parties		35,876,251

		40,873,200
Less: current portion of notes payable		9,029,914

Notes payable, less current portion	$	31,843,286


	Capital Lease		Operating				Convertible
	Obligations		Leases		Notes Payable		Debt		Total

2004	$	2,347,715	$	4,686,207	$	9,029,914	$	2,750,000	$	18,813,836
2005		314,818		6,269,709		2,144,292		10,500,000		19,228,819
2006		37,444		7,289,540		29,667,180		21,378,953		58,373,117
2007		7,701		7,617,099		31,814		—		7,656,614
2008		—		7,735,637		—		—		7,735,637
Thereafter		—		166,096,613		—		—		166,096,613

	$	2,707,678	$	199,694,805	$	40,873,200	$	34,628,953	$	277,904,636


Item 3.	*Quantitative and Qualitative Disclosures About Market Risk.*


Exhibit
Number			Exhibit Description

	4	.1	Certificate of Designations for the Series I Convertible Preferred Stock
	31	.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31	.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32	.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32	.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


	/s/ MANUEL D. MEDINA

	Manuel D. Medina
	Chief Executive Officer