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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission file number 0-22520

Terremark Worldwide, Inc.

Registrant’s telephone number, including area code:

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

     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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (17CFR 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

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

     The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $116,000,000, based on the closing market price of the registrant’s common stock ($0.70) as reported by the American Stock Exchange on such date.

     The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of June 4, 2004 was 366,524,531.

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ITEM 1.     BUSINESS.

      The words “Terremark”, “we”, “our”, “ours”, and “us” refer to Terremark Worldwide, Inc. All statements in this discussion that are not historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding Terremark’s “expectations”, “beliefs”, “hopes”, “intentions”, “strategies” or the like. Such statements are based on management’s current expectations and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Terremark cautions investors that actual results or business condition may differ materially from those projected or suggested in such forward-looking statements as a result of various factors, including, but not limited to, the risk factors discussed in this Annual Report on Form 10-K. Terremark expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Terremark’s expectations with regard thereto or any change in events, conditions, or circumstances on which any such statements are based.

Recent Events

      On June 14, 2004, Terremark privately placed $75 million in aggregate principal amount of 9% Senior Convertible Notes due June 15, 2009. We plan to utilize the net proceeds from this offering to pay all of our outstanding debt, for possible acquisitions and for general corporate purposes, including working capital and capital expenditures. The notes are convertible at the option of the holders into our common stock at $1.25 per share. See “Management’s Discussion and Analysis — Liquidity and Capital Resources” for the impact of this transaction on our financial condition.

      On May 17, 2004, we provided certain debenture holders with notice of our intent to redeem $25.0 million of our 10% convertible debentures and $2.8 million of our 13.125% convertible debentures, effective May 31, 2004. As of May 31, 2004, all of the holders of our 10% convertible debentures and $2.5 million in principal of our 13.125% convertible debentures opted to convert their debentures into an aggregate of 54,726,427 shares of our common stock.

      The following table shows our capitalization as of March 31, 2004 and as adjusted to give effect to $75 million of proceeds from this offering and the conversion to equity of $27.5 in principal of our convertible debentures:

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(1)	Reflects the following adjustments:

	(a)	Net proceeds of $70.3 million from the offering, net of $4.7 million in debt issuance costs.
	(b)	Collection of the $2.4 million note receivable related to the Series I convertible preferred stock.
	(c)	Payment of all of our outstanding notes payable, plus accrued interest amounting to $37.2 million.
	(d)	Payment of the remaining $.3 million balance of 13.125% convertible debentures.
	(e)	Payment of all our $11.1 million outstanding 13% convertible debentures, including a 2% early redemption premium and accrued interest.

(2)	Reflects the following adjustments:

	(a)	$4.3 million of unamortized debt restructuring gain.
	(b)	$.9 million of unamortized beneficial conversion feature.
	(c)	$.2 million write-off of unamortized debt issuance costs for debt paid or converted.

(3)	Reflects the conversion to common stock of $27.5 million of our convertible debentures plus $.5 million in accrued interest.

Overview

      Terremark Worldwide, Inc. operates Internet Exchange Point facilities at strategic locations in Miami, Florida; Santa Clara, California; and Sao Paulo, Brazil, from which we assist users of the Internet and communications networks in communicating with other users and networks. Our primary facility is the NAP of the Americas located in Miami, where as of June 14, 2004 we have over 155 customers including over 80 network service providers. We generate revenue by providing exchange point, colocation and managed services to carriers, Internet service providers, network service providers, government entities, multi-national enterprises and other end users.

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

      Initially, four IX’s — 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-

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      Our Internet Exchange Point facilities are carrier-neutral. We are not owned or controlled by, nor affiliated with, any telecommunications carrier. Rather, we enable our customers to freely choose from among the many carriers available at our Internet Exchange Point facilities. We believe that our carrier neutrality and the diversity of network service providers present at our facilities provides us with a competitive advantage when compared to carrier-operated network access points where customers are limited to conducting business with one carrier.

      We generate revenue by providing our customers with:

	•	the site and platform they need to exchange Internet and data traffic;
	•	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 our Internet Exchange Point facilities.

      Currently, our customers include telecommunications carriers such as AT&T, MCI, Qwest and Sprint, enterprises such as Bacardi USA, Intrado, and Steiner Leisure, content providers such as Yahoo! and Akamai, and 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.

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

      Our principal executive office is located at 2601 S. Bayshore Drive, Miami, Florida 33133. Our telephone number is (305) 856-3200.

Industry

      The Internet is a collection of many independent networks interconnected with each other to form a network of networks. Information that is to be transported over the Internet is divided into discreet identical sized packets that are transmitted over the primary Internet networks, known as backbones, and then reassembled at their destination where they are presented to the end user in the same form as the original information. However, not all Internet backbones reach all locations on the Internet. Therefore, users on different networks need to communicate with each other and transmit packets to each other through interconnection between these networks. To accommodate the fast growth of traffic over the Internet, an organized approach for network interconnection was needed. The exchange of traffic between these networks without payment became known as “peering”. When a fee is paid, it is referred to as “transit.” The points and places where these networks exchange traffic, or peer, with each other are known as Internet Exchanges, or IX’s.

      Since the beginning of the Internet, major traffic aggregation and exchange points have developed around the world. The first four Tier-1 IX’s were built in the United States in the early 1990’s to serve the northern part of the country, from East Coast to West Coast, and are located in New York, Washington, Chicago and San Francisco. These IX’s were built with sponsorship from the National Science Foundation in order to promote Internet development and used the existing infrastructures of telecommunication companies, to

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      We operate Internet Exchange Point facilities at strategic locations in Miami, Florida; Santa Clara, California; and Sao Paulo, Brazil, 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, where we have over 155 customers including over 80 network service providers. We generate revenue by providing exchange point, colocation and managed services to carriers, Internet service providers, network service providers, government entities, multi-national enterprises and other end users. Using the airport analogy again, customers at our facilities exchange and redirect Internet and data traffic to multiple destinations, and purchase various managed services, similar to what happens in airport terminals with the provision of fuel, maintenance, spare parts and food.

Strategy

      We have created a new business model for IX’s by providing customers with:

	•	the connectivity of a world-class IX in a carrier-neutral facility;
	•	highly conditioned space within which to locate equipment next to other customers; and
	•	managed services meeting the design and operational specifications of multinational carriers, enterprises and government customers.

      Our strategy is to leverage our major connectivity hubs to sell services to customers within and outside of our Internet Exchange Point facilities. For example, we have been retained by the United States Department Diplomatic Telecommunications Service Program Office, under three publicly awarded contracts, to design, implement and manage the system which will permit designated overseas locations to have global Internet access. Although the NAP of the Americas serves as the hub to manage this solution, we are leveraging our international carrier relationships to provide this customer with connectivity and technology solutions to communicate with U.S. government locations around the world.

      Our business model for international expansion requires limited capital investment and is best compared to that of a management company model in the hospitality industry. The model contemplates that a local in-country partner would own and fund the development and build-out of the facility in which our NAP would be located. The facility would ideally be a new development built to our exact specifications (as is the case in Miami), but it may be located in an existing building that is retrofitted to conform to those specifications. We intend to control the operations of particular the central points of connectivity, known as meet point rooms, within the facility. We have implemented this expansion model in both Sao Paulo, Brazil and Madrid, Spain.

      In February 2002, we entered into an agreement with Fundacao de Amparo a Pesquisa do Estado de Sao Paulo, the research foundation for the State of Sao Paulo, known as FAPESP, to operate and manage the IX created by FAPESP, which we have renamed the NAP do Brasil. Pursuant to the twenty year agreement, FAPESP turned over the network access point to Terremark, which we moved in February 2004 to permanent facilities in an existing data center where we have contractual control of the data center’s meet point room. The NAP do Brasil is modeled after the operational design of the NAP of the Americas. Pre-existing FAPESP customers have the right to continue to receive services at the then existing levels without payment until February 2004. FAPESP will receive 6% of the revenue generated by the NAP do Brazil for the first five years of operation, 5% during the following five years, and 1% during the last ten years. The term may be extended for an additional ten-year period, during which FAPESP would again receive 1% of the revenues. For the year ended March 31, 2004, our Brazilian operations generated losses of approximately $824,000 on revenues of approximately $160,000.

      In June 2002, we entered into an exclusive agreement with the Comunidad Autonoma de Madrid to develop and operate carrier-neutral network access points in Spain. As part of that agreement, the parties

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      We provided the technical and operational know-how for the development of an interim NAP de las Americas — Madrid which became operational in July 2002. During the year ended March 31, 2004, we recognized approximately $43,000 in revenues from services billed to the NAP de Las Americas — Madrid S.A.

      In May 2004, we entered into an agreement with Global Switch LLP to move the NAP de las Americas — Madrid to a facility in Madrid owned by Global Switch LLP.

      With our operations in Miami, Santa Clara and Sao Paulo, and the Madrid facility expected to be operational by July 2004, we will have Internet Exchange Point facilities located at major crossroads of Internet and data traffic. PriMetrica (formerly Telegeography), researcher and publisher of international telecom statistics, in its Global Internet Geography 2004, ranked Miami, the home of the NAP of the Americas, as the number one international Internet Hub City for Latin America and the Caribbean, Sao Paulo, where the NAP do Brasil is located, is ranked second. The San Francisco Bay area, where our NAP of the Americas/West facility is located, and Madrid, where our NAP de las Americas — Madrid is being deployed, are ranked fifth and twenty-first, respectively, in the Top 50 Interregional Internet Hub Cities in the world. We believe the Madrid network access point will also benefit from Madrid’s strategic geographic location by serving as an Internet gateway to the European Union, North Africa and the Americas.

      We continue to explore other locations and have targeted additional locations in Europe, the Middle East and Mexico as a prospective hub locations.

Value Proposition

      The combination of connectivity, neutrality and quality of our facilities allows us to provide the following value proposition to our customers:

	•	Carrier-neutrality: Carriers and other customers are willing to locate their equipment within our facility and use our professional managed services because we neither discriminate against nor give preference to any individual or group of customers. Locating equipment at a data center is known in the industry as “colocation.”
	•	Connectivity: Our customers can access any of the more than 80 network providers present at our facilities.
	•	“Zero-Mile” Access: Because our facilities provide carrier-grade colocation space directly adjacent to the point at which the traffic is exchanged, there is effectively “zero” distance between the peering point and customers’ equipment, which reduces costs and points of failure and increases efficiency, and creates a new paradigm, connecting all participants at a distance of zero miles.
	•	Service Level Agreements: We guarantee our customers 100% power availability and environmental stability at the NAP of the Americas.
	•	Outsourcing of Services: Because of our staff’s expertise, our customers find it more cost effective to contract us to design, deploy, operate, monitor and manage their equipment and networks at our facilities than to hire dedicated staff to perform those functions.

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

      Furthermore, given the heightened focus on homeland security, we are focusing on meeting the security sensitive technology needs of federal, state and local governments, as well as large enterprises. Our value proposition to this sector revolves around our security, critical mass of Internet and data connectivity and carrier neutrality.

      Consequently, we have built a team of employees with federal government security clearances that, as of June 1, 2004, represented approximately 15% of our employee base. In addition, our facility in Miami can provide Secured Compartmentalized Information Facility certified space to customers that require that type of specialized environment.

Services

      We currently offer the following core services:

	Exchange Point Service: Our facilities provide a service called Exchange Point Service, which is designed to facilitate both peering and the purchase of transit, among customers.
	Colocation Services: Our facilities provide the physical environment necessary to keep a customer’s Internet and telecommunications equipment up and running 24 hours a day, seven days a week. This facility is custom designed to exceed industry standards for electrical and environmental systems. In addition, it offers a wide range of physical security features, including biometric scanners, man traps, smoke detection, fire suppression systems, motion sensors, secured access, video camera surveillance and security breach alarms. High levels of reliability are achieved through a number of redundant subsystems including power and fiber trunks from multiple sources.
	Managed Services: Our managed services are designed to support our customers’ mission-critical needs that focus on producing faster network response times. We currently offer the following managed services:

	•	Add/Drop Multiplexer Service  — This service provides customers maximum interconnection efficiency using operational support systems to provide rapid provisioning, monitoring and management of customer circuits.
	•	Network Deployment and Relocation Services — This service leverages our team of engineers to assist customers with the deployment and relocation of critical systems both within and outside our facilities. Our team will identifies, schedules, document and monitors activities required for successful relocation of equipment as part of the overall network relocation project.
	•	Engineering Services — We offer facility and equipment design and engineering services, including structural, mechanical, electrical and network systems, all provided by our staff of industry certified engineers.
	•	Installation Services — Our installation services specialists provide basic installation of our customers’ equipment. This service reduces our customers’ implementation times, and increases the productivity of our customers’ technical personnel, by avoiding costly downtime due to lack of materials and equipment management and project coordination.
	•	Managed Router Service — Utilizing the large mass of carriers at our facilities, this service offers customers cost savings and convenience by providing Internet access without the need to purchase or manage an Internet router. Customer network performance is optimized and multi-home configurations offer increased redundancy and reliability.

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	•	Network Management Services — This service assists customers in achieving maximum uptime by enlisting our engineers at our facility’s Network Operations Center to monitor and manage their equipment located within and outside the facility.
	•	Systems Monitoring Services — This service assists customers in achieving maximum uptime by enlisting engineers to monitor their equipment located at our facilities or anywhere else on their network.
	•	Professional Staging Service — This service turns the implementation of any network or telecom environment into a simple plug and play process. Customers ship their equipment to the NAP or alternate destination for installation, and our staging services team gathers and inspects all the equipment components. The team then assembles, configures, tests, and completes an inventory of the equipment, reducing the time required for a customer to install and load final configurations on site. The service also ensures that all ordered components are configured and installed properly in a controlled and stable environment.
	•	Reference Timing — This service allows our customers to save on equipment costs, installation times and maintenance of their network timing reference by using our on site Stratum source.
	•	Remote Hands Assistance — Remote Hands assists customers that need to remotely access their equipment to perform simple troubleshooting or minor maintenance tasks on a 24 hour per day, 7 day per week basis that does not require tools or equipment. Remote Hands services are available on demand or per contract.
	•	Smart Hands Assistance — Smart Hands enhances the Remote Hands service with more complex remote assistance using industry certified engineers for troubleshooting and maintenance.
	•	Turn Key Solution — Our staff can provide full integration activities for all aspects of a “turn key” global project. Along with the planning, design and engineering related to the network and the general program management to control the project, we manage vendors, purchase equipment, receive, store and manage inventory, provision, test, ship, track, install, turn up, monitor and manage performance of the network and monitor and maintain equipment and services.

Customers

      Our customer contracts have terms of between one year and twenty years, with an average of 2.5 years. Our customer contracts do not allow for early termination before the stated maturity date and typically provide for penalties if they are cancelled prior to expiration. Currently we have over 155 customers. The U.S. Federal government and Latin American Nautilus USA Inc. accounted for approximately $2.4 million and $1.7 million, or 14% and 10%, of total data center services revenues, respectively, for the year ended March 31, 2004. Latin American Nautilus USA Inc. and Progress Telecom accounted for approximately $1.4 million (or 14%) and $1.0 million (or 10%) in data center revenues, respectively, for the year ended March 31, 2003.

Sales and Marketing

      Sales. We sell our products and services primarily through our direct sales force, which we organize by industry sectors such as carriers, enterprises, government and educational. We also have sales representatives at our facilities in Santa Clara, California and in San Paulo, Brazil, and expect to have a sales representative in Madrid, Spain by July 2004. We also have a channel marketing program to market our services to promote our products and services to enterprises in various geographic locations. This sales force is supported by a team of trained support engineers who work with our sales executives and their customers to respond to customer questions and design a package of services that best meets the customer’s needs.

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      Marketing. Our marketing activities are designed to drive awareness of our products and services, and generate qualified sales opportunities through various direct marketing and event driven campaigns. Our marketing team is responsible for providing our sales force with product brochures, collateral and relevant sales tools to improve their sales effectiveness. Our marketing organization also is responsible for our product strategy and direction based upon primary and secondary market research and the advancement of new technologies. We participate in a variety of Internet, computer and financial industry conferences and place our officers and employees in keynote speaking engagements at these conferences. In addition to these activities, we build recognition through sponsoring or leading industry technical forums and participating in Internet industry standard-setting bodies.

Competition

      Our NAPs are neither a traditional data center, nor a traditional IX. Unlike many IXs in the United States, we combine exchange point services (to facilitate peering) with carrier-grade colocation space and managed services in carrier neutral facilities. Consequently, we believe that our facilities are competitively unique and can only be replicated through the expenditures of significant funds over a lengthy period, an unlikely event in today’s telecommunications environment.

      We believe that carriers and Internet service providers have no need to be in two different Tier-1 IX’s serving the same geographic area. Therefore, to the extent that carriers are located in our facilities, and have already invested significant funds to establish their presence at those facilities, this is an incentive for them to remain our customers. In addition, a competing Tier-1 IX would require the backing of carriers and Internet service providers serving this area, many of which are already our customers.

      However, our current and potential competition includes:

	•	Internet data centers operated by established U.S., Brazilian and Spanish communications carriers such as AT&T, Qwest, Embratel and Telefonica. Unlike the major network providers, which constructed data centers primarily to help sell bandwidth, we have aggregated multiple networks in one location, which we believe provides diversity, competitive prices and high performance. Carrier operated data centers only provide one choice of carrier and generally require capacity minimums as part of their pricing structures. Our NAPs provide access to a choice of carriers and allow our customers to negotiate the best prices with a number of carriers resulting in better economics and redundancy.
	•	U.S. IX’s such as MAE West and carrier operated IX’s. IX’s, generally operated by carriers, are typically older facilities and may lack the incentive to upgrade the infrastructure in order to scale with traffic growth. In contrast, we provide secure facilities with 24-hour support and a full range of network and managed services.
	•	Vertically integrated web site hosting companies, colocation companies and Internet service providers such as Navisite and Globix. Some managed service providers require that customers purchase their entire network and managed services directly from them. We are a network and service provider aggregator and allow our customers to contract directly with the networks and web-hosting partner best suited for their business.
	•	Neutral colocation and Internet exchange services companies such as Equinix. Geographic location tends to be an important factor in determining where networks will meet to create neutral points of connectivity. The location available may not be where potential buyers need capacity or where demand exists. Also, much of the older data center capacity cannot support current blade server technology that requires much more intensive cooling and power density. Our facilities are neutral connectivity points in their respective geographic areas. We believe that this creates a natural barrier to entry to competitors, as our large customers would likely not incur the expense to relocate or deploy similar infrastructure in other centers within our geographic regions. For this reason, we believe that we have positioned our company as a leader in carrier neutral exchange points connecting the United States and Europe to Latin American markets.

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Employees

      As of March 31, 2004, we had 145 full-time employees in the United States. Of these employees, 75 were in data center operations, 20 were in sales and marketing and 50 were in general and administrative. We also have four sales and administrative representatives in Brazil.

      Our employees are not represented by a labor union and are not covered by a collective bargaining agreement. We believe that our relations with our employees are good.

Available Information

      Our Internet website address is www.terremark.com. We make available free of charge, on or through our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission, or SEC. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. We also make available on our website other reports filed with the SEC under the Securities Exchange Act of 1934, as amended, including proxy statements and reports filed by officers and directors under Section 16(a) of that Act. These reports may be found by selecting the option entitled “SEC FILINGS” in the “INVESTOR RELATIONS” section on our website. Information contained in or connected to our website is not part of this report.

      We lease 120,000 square feet at the Technology Center of the Americas (“TECOTA”) for the NAP of the Americas. The term of the lease commenced in October 2001 and is for 20 years. Monthly base rent is approximately $216,000. We are also responsible for our pro rata share of common area maintenance expenses and real estate taxes, which amount to approximately $40,000 per month. On November 3, 2003, we entered into an agreement to lease an additional 120,000 square feet of space in the third floor of TECOTA, and extend our existing lease in the second floor to co-terminate with the third floor lease on May 31, 2025. Annual base rent for the third floor is approximately $2.4 million. Monthly base rent payments will commence in April 2005. We will also be responsible for our pro rata share of common area maintenance expenses and real estate taxes.

      In Sao Paulo, Brazil, we lease approximately 5,500 feet at a Hewlett Packard data center. Annual rent is approximately $50,000. The term of the lease commenced in October 2003 and is for 18 years.

      In Santa Clara, California, we lease approximately 40,000 square feet for a colocation facility. The term of the lease commenced in January 2001 and is for 20 years. Annual rent is approximately $1,500,000. We are responsible for real estate taxes and property and casualty insurance expenses which in the aggregate amount to approximately $46,000 annually.

      We also lease approximately 14,660 square feet for our corporate office in Miami, Florida. The term of the lease commenced in April 2000 and is for five years. Annual rent is approximately $440,000. We are also responsible for our share of common area maintenance expenses and real estate taxes.

      Additionally, we lease approximately 12,000 square feet for office space in Miami, Florida. Annual rent is approximately $220,000. The term of the lease commenced in February 2001 and is for five years.

      We are not currently subject to any litigation which individually or in the aggregate could reasonably be expected to have a material adverse effect on our financial condition or results of operations.

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      No matters were submitted to a vote of our stockholders during the three months ended March 31, 2004.

PART II

Common Stock and Preferred Stock Information

      Our common stock, par value $0.001 per share, is quoted under the symbol “TWW” on the American Stock Exchange. As of May 31, 2004, we had the authority to issue:

	•	500,000,000 shares of common stock, par value $0.001 per share; and
	•	10,000,000 shares of preferred stock, par value $0.001 per share, which are issuable in series on terms to be determined by our board of directors, of which 20 shares are designated as Series G Convertible Preferred Stock, 294 shares are designated as Series H Convertible Preferred Stock, and 400 shares of Series I Convertible Preferred Stock.

      As of May 31, 2004:

	•	311,798,104 shares of our common stock were outstanding;
	•	20 shares of our Series G Convertible Preferred Stock were outstanding and held by an entity in which Manuel Medina, our Chairman and Chief Executive Officer, owns a 50% interest and could have been converted into 2,163,809 shares of our common stock;
	•	294 shares of our Series H Convertible Preferred Stock were outstanding and held by one holder of record. Each share of Series H Convertible Preferred Stock may be converted into 1,000 shares of our common stock; and
	•	400 shares of our Series I Convertible Preferred Stock were outstanding. Each share of Series I Convertible Preferred Stock may be converted into 33,334 shares of our common stock.

      We believe there are approximately 8,800 beneficial owners of our common stock.

      The following table sets forth, for the fiscal quarters indicated, the high and low sales prices for our common stock on the American Stock Exchange. Quotations are based on actual transactions and not bid prices.

Dividend Policy

      Holders of our common stock are entitled to receive dividends or other distributions when and if declared by our board of directors. The right of our board of directors to declare dividends, however, is subject to any

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Recent Sales of Unregistered Securities

      In May 2004, we issued three senior secured promissory notes in favor of Veritas High Yield Arbitrage I Fund, LLC, Veritas High Yield Arbitrage II Fund, LLC, and Veritas High Yield Arbitrage Fund, (Bermuda) Ltd. (collectively the “Lenders”) for the aggregate amount of $5.2 million. The notes accrue interest at 12% per annum, are paid monthly based on original face amount, and mature on October 29, 2004, with prepayment permitted without penalty after the first month. We also issued 200,000 warrants in favor of the lenders with a strike price of $0.01, which expire two years after the effective date of the registration statement for the underlying common stock. We agreed to file a registration statement covering the shares of common stock underlying the warrants and to use our best efforts to cause the registration statement to become effective by August 15, 2004. In the event the registration statement is not declared effective on or before August 15, 2004, we must deposit 200,000 fully registered shares of common stock into escrow. The notes are secured by 10 million shares of our common stock placed in escrow by certain of our stockholders, as well as two of our directors, Guillermo Amore and Miguel Rosenfeld, including several entities beneficially owned or controlled by them. The shares pledged as security are subject to increase if at any time prior to repayment in full of each note, the ten day moving average price of our common stock is less than 80% of the trailing ten day volume weighted average price prior to closing (as appropriately adjusted for any stock dividends, recapitalizations or similar events), or if we merge, consolidate or undergo a recapitalization, or issue additional securities. We have executed an indemnification agreement in favor of each of the individuals and entities pledging shares of our common stock as security in connection with each of the notes. We paid a finder’s fee of $130,000 to McMahan Securities Co. L.P. in connection with of the issuance of notes and warrants to the lenders. There is certain common ownership between the lenders and McMahan Securities Co. L.P.

      On March 31, 2004, we issued 400 shares of Series I 8% Convertible Preferred Stock for $7.8 million in cash and $2.2 million in promissory notes, together with warrants to purchase 2.8 million shares of our common stock. We have collected all amounts due under the promissory note. The Series I Preferred Stock is convertible into shares of our common stock at $0.75 per share. In January 2007, the Series I Preferred Stock dividend rate will increase to 10% per year until January 2009 when it increases to 12%. Dividends are payable quarterly, at our discretion, in shares of our common stock or cash. We have the right to redeem the Series I Preferred Stock at $25,000 per share plus accrued dividends at any time after December 31, 2004.

      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 debentures are 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 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.

      These offers and sales of our common stock were exempt from the registration requirements of the Securities Act of 1933, as amended as the common stock was sold to accredited investors pursuant to Regulation D and to non-United States persons in offshore transactions pursuant to Regulation S.

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      The following selected consolidated annual financial statement data has been derived from our audited Consolidated Financial Statements. The data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and the Notes thereto included elsewhere herein.