Terremark chairman/CEO Manuel D. Medina says the increase in the net loss was "primarily related to a non-cash charge, resulting from the conversion of debt to equity in December 2002."

On the positive side, the Miami-based developer increased its data center revenue generated by the NAP of the Americas to $2.6 million from $2.4 million in the second quarter. Consolidated revenue was $2.8 million, down from $3.7 million. Medina says a drop of $1 million in revenue from construction activities caused the decrease.

The company's loss on earnings before interest, taxes, depreciation and amortization improved to $4.2 million from $4.4 million in previous period.

"Today's business environment continues to present a mixture of opportunities and challenges," Medina tells shareholders. "Although many carriers have retrenched and are no longer building their own data centers, it did not reduce their need to provide their customers with the types of solutions we offer."

Medina says Terremark continues to believe the NAP of the Americas "has become an attractive solution for these telecommunications carriers because our facility addresses their customers' needs."

Through several strategic moves in 2002, he says Terremark is in a position to create "a strong customer pipeline that we estimate will lead to a significant number of new contracts." Additional prospect leads have come from the company's new government division, HP Alliance, "and other initiatives established earlier this year," Medina says.

The company continues to further reduce its debt service, convert additional debt to equity and to improve its operating performance, cost containment column and balance sheet.

Terremark has converted $17 million of debt to equity and has contracted to convert an additional $22.6 million of debt to equity, Medina says. The firm named Arthur Money, former assistant secretary of defense and Defense Department CIO to head Terremark's newly established government division which targets the government, defense and intelligence sectors as customers of the NAP of the Americas.

The company also added Advanced Communications Network, El Salvador Telecom, IDT Domestic Telecom, Tyco Telecommunications and Coverall North America as NAP customers.