##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, DC 20549




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Form 10-K

|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the fiscal year ended December 31,
    2002                                             
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|  
|   |  | For the transition period
    from                                to                        

Commission File Number 000-31181



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America Online Latin America, Inc.

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                           |  | 65-0963212                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)

6600 N. Andrews Avenue

Suite 400


Fort Lauderdale, FL 33309


(Address of principal executive offices,
including zip code)


Registrants telephone number, including
area code:

954-689-3000


Securities registered pursuant to
Section 12(b) of the Exchange Act: None

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

Class A common stock, par value $0.01 per
share

(Title of class)


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 is not contained herein, and will not be
contained, to the best of the 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 Rule 12b-2 of the
Act).     Yes o          No þ

The aggregate market value of the
registrants voting and non-voting common stock held by
non-affiliates of the registrant (without admitting that any
person whose shares are not included in such calculation is an
affiliate) computed by reference to the price at which common
stock was last sold, or the average bid and asked price of the
common stock, as of the last business day of the
registrants most recently completed second fiscal quarter,
June 30, 2002, was $14,804,624.

The number of shares of the registrants
class A common stock outstanding as of March 25, 2003
was 135,135,137. No shares of the registrants class B
common stock or class C common stock were outstanding as of
March 25, 2003.









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TABLE OF CONTENTS



|                                                   |                                                                                                 |  |  |  |  |  |  | 
|-------------------------------------------------- | ----------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                            
|                                                   | Item 1. Business                                                                               
|                                                   | Item 2. Properties                                                                             
|                                                   | Item 3. Legal Proceedings                                                                      
|                                                   | Item 4. Submission of Matters to a Vote of Security Holders                                    
|PART II                                           
|                                                   | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                  
|                                                   | Item 6. Selected Financial Data                                                                
|                                                   | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations  
|                                                   | Item 7A. Quantitative and Qualitative Disclosures about Market Risk                            
|                                                   | Item 8. Financial Statements and Supplementary Data                                            
|                                                   | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.  
|PART III                                          
|                                                   | Item 10. Directors and Executive Officers of the Registrant                                    
|                                                   | Item 11. Executive Compensation                                                                
|                                                   | Item 12. Security Ownership of Beneficial Owners and Management and Related Stockholder Matters
|                                                   | Item 13. Certain Relationships and Related Transactions                                        
|                                                   | Item 14. Controls And Procedures                                                               
|PART IV                                           
|                                                   | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                       
|REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
|EX-10.22 Agreement for Telecommunications Services
|EX-10.24 Business Cooperation Agreement           
|EX-10.51 Amendment No.12 to Agreement w/Embratel  
|EX-10.54 Agreement w/Avantel S.A.                 
|EX-10.55 Letter Agreement dated December 13, 2002 
|EX-10.58 Agreement for Consulting Services        
|EX-21.1 Subsidiaries of the Company               
|EX-23.1 Consent of Ernst & Young LLP              
|EX-99.1 Certifications of the CEO & CFO           
|EX-99.2 Certification of Chief Executive Officer  
|EX-99.3 Certification of Chief Financial Officer  



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##### Table of Contents



TABLE OF CONTENTS

|         |  |                                                                                           |  |      |    | 
|-------- |  | ----------------------------------------------------------------------------------------- |  | ---- | -- | 
|         |  |                                                                                           |  | Page
|         |  |                                                                                           |  |     
|PART I  
|Item 1.  |  | Business                                                                                  |  |      | 2  | 
|Item 2.  |  | Properties                                                                                |  |      | 16 | 
|Item 3.  |  | Legal Proceedings                                                                         |  |      | 16 | 
|Item 4.  |  | Submission of Matters to a Vote of Security
    Holders                                   |  |      | 16 | 
|PART II 
|Item 5.  |  | Market for Registrants Common Equity and
    Related Stockholder Matters                 |  |      | 17 | 
|Item 6.  |  | Selected Financial Data                                                                   |  |      | 19 | 
|Item 7.  |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |  |      | 19 | 
|Item 7A. |  | Quantitative and Qualitative Disclosures about
    Market Risk                            |  |      | 47 | 
|Item 8.  |  | Financial Statements and Supplementary Data                                               |  |      | 47 | 
|Item 9.  |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure  |  |      | 48 | 
|PART III
|Item 10. |  | Directors and Executive Officers of the Registrant                                        |  |      | 48 | 
|Item 11. |  | Executive Compensation                                                                    |  |      | 53 | 
|Item 12. |  | Security Ownership of Certain Beneficial Owners
    and Management                        |  |      | 57 | 
|Item 13. |  | Certain Relationships and Related Transactions                                            |  |      | 61 | 
|Item 14. |  | Controls and Procedures                                                                   |  |      | 66 | 
|PART IV 
|Item 15. |  | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                       |  |      | 66 | 

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PART I

This Annual Report on Form 10-K contains
forward-looking statements that are based on our current
expectations. Actual results in future periods may differ
materially from those expressed or implied by such
forward-looking statements because of a number of risks and
uncertainties. For a discussion of factors affecting our
business and prospects, see Item 7 
Managements Discussion and Analysis of Financial Condition
and Results of Operations  Risk
Factors.




Item 1.     Business

Overview

America Online Latin America, Inc.
(we, us, AOLA or the
company) is one of the leading interactive service
providers in Latin America. Our goal is to become Latin
Americas leader in the development of the global
interactive medium that is changing the way people communicate,
stay informed, are entertained, learn, shop and conduct
business. We derive our revenues principally from member
subscriptions to our AOLA country services and the AOL-branded
service in Puerto Rico. We also generate additional revenues
from advertising and other revenue sources. Our comprehensive
online services, which are available to subscribing members, and
our interactive services are developed on a country-by-country
and regional basis and are tailored to local interests.

The AOLA country services provide our members
with easy and reliable access to local, regional and global
online communities, content and localized versions of America
Online, Inc.s (America Online) interactive
products. Our AOLA country services seamlessly integrate the
Internet, enabling members to access and explore the Internet.
We believe the AOLA country services encourage members to
participate in interactive communities through tools such as
Spanish and Portuguese versions of AOL Instant Messenger, Buddy
Lists, e-mail, public bulletin boards, online meeting rooms,
conversations, chat and auditorium events. Members can also
personalize their online experience through a variety of
features, including customized news and parental and e-mail
controls. Our AOLA country services also provide members with
local and regional content organized into channels, making areas
of interest easy to find, as well as providing access to the
extensive global content of the AOL service.

Our markets in Latin America are Brazil, Mexico,
Argentina and Puerto Rico. In November 1999, we launched our
first AOLA country service, America Online Brazil. As of
February 2003, we offered our America Online Brazil service in
237 cities in Brazil. In July 2000, we launched our country
service in Mexico, America Online Mexico. As of February 2003,
we offered our America Online Mexico service in 58 cities in
Mexico. In August 2000, we launched our country service in
Argentina, America Online Argentina. As of February 2003, we
offered our America Online Argentina service in 22 cities in
Argentina. As part of the ongoing development of our service
territory, in December 2000, we expanded into Puerto Rico under
an agreement with America Online under which America Online
transferred its economic interest in its existing subscriber
base to us. We receive the economic benefit associated with
subscribers to the AOL-branded service in Puerto Rico and
include these subscribers in our member totals. Subscribers in
Puerto Rico are provided with both English and Spanish language
content through the AOL-branded service. As of February 2003,
service in Puerto Rico was offered island-wide.

In June 2000, we entered into a ten-year
strategic alliance with Banco Itaú, one of the largest
banks in Latin America. We launched a co-branded, customized
version of our America Online Brazil service that Banco
Itaú began marketing to its customers in December 2000 and
Banco Itaú is obligated to promote the co-branded service
as the principal means of accessing Banco Itaús
interactive financial services. As of December 2002, Banco
Itaú reported that it had approximately 9.2 million
active customers, of which 2.6 million were registered to use
online banking services, primarily through Banco
Itaús proprietary service, as well as the AOL
co-branded service. We believe that this relationship will
enable us to expand our Internet presence in Brazil by allowing
us to gain access to Banco Itaús online as well as
offline customer base.

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The co-branded service is substantially the same
as our AOLA country service in terms of technology and content,
except that we offer a co-branded welcome screen for Banco
Itaú customers, a Banco Itaú toolbar icon, a special
version of our finance channel and links that directly connect
Banco Itaús customers to its online financial
services. Subscribers to the co-branded service have access to
our full line of features as provided to our general customers,
including e-mail with multiple AOL screen names, instant
messaging, Internet access, interaction with our worldwide
online community and our 24-hour customer service.

On December 14, 2002, we amended our
strategic marketing alliance with Banco Itaú. Under the new
agreement, we now oversee, in large part, the marketing
activities for the co-branded service. Banco Itaú is
obligated to establish kiosks and point-of-sale displays in
hundreds of its bank branches for the promotion of the
co-branded service, which are staffed by promoters trained by
AOL Brazil. Potential subscribers are able to sample the
co-branded service and register in the bank branch. Banco
Itaú is also required to distribute, at our direction, a
certain number of CD-ROMs containing the software for the
co-branded service via in-branch promotions and direct mail.
Banco Itaú must also produce and broadcast a certain number
of television commercials promoting the co-branded service and
provide exclusive online banking benefits to subscribers to the
co-branded service. Banco Itaú will be responsible for the
cost of these marketing efforts. The modified marketing
arrangements will remain in effect through March 2006, although
the ten-year term of the agreement did not change. For further
discussion of the revised marketing agreement with Banco
Itaú, please see Item 1 
Business  Strategic Alliance with Banco Itaú.

We consider countries in which we have launched
our AOLA country services as operational segments and internally
report our operations on a country-by-country basis. Each of our
operating segments derives its revenues through the provision of
interactive services from subscription revenues and advertising
and other revenues. For further discussion derived from our
operating segments, please see Item 7 
Managements Discussion and Analysis of Financial Condition
and Results of Operations  Segment Results of
Operations.

Our founders and principal stockholders are
America Online, a subsidiary of AOL Time Warner Inc.
(AOLTW), and the Cisneros Group of Companies
(Cisneros Group). The Cisneros Group is a name used
to describe a group of investments, joint ventures, strategic
alliances and companies that are associated with two of our
directors, Ricardo and Gustavo Cisneros, and trusts established
by them principally for the benefit of themselves and their
families.

Our principal executive offices are located at
6600 N. Andrews Ave., Suite 400, Ft. Lauderdale, FL 33309, and
our telephone number is (954) 689-3000. We were
incorporated in Delaware on November 22, 1999. Before
August 7, 2000, our business was conducted by affiliates of
AOL Latin America, S.L., a limited liability company
incorporated under the laws of Spain in December 1998. AOL Latin
America, S.L. was formed by America Online and the Cisneros
Group as a joint venture. On August 7, 2000, we reorganized
our corporate structure. For a further discussion of this
reorganization, see Note 1 to our consolidated financial
statements.

Our Services



| |                          
| | -------------------------
| | The AOLA Country Services

Our AOLA country services offer the following
features:

Access to the
Internet.We provide our members with
access to and use of the Internet without having to leave our
online services. A simple tool bar on the AOLA country services
allows members to move between the features and content on our
online service and the Internet. Access to the Internet also
includes newsgroups and file transfer capabilities.

Online Community
Features.We believe that our AOLA
country services promote interactive online communities through
features such as e-mail, public bulletin boards, Buddy Lists,
AOL Instant

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Messenger, online community centers, AOL Live,
which features interviews with celebrities, and Amor@AOL, which
provides personal advertisements in Spanish or Portuguese.


Channel Line-Up.Each AOLA country service features channels for news, finance,
entertainment, Internet and computing, sports, local, lifestyles
and shopping.

Personalization and Control
Features.Members are able to
personalize their experience on our AOLA country services
through a number of features and tools, including:



| |   |                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Multiple screen names, or e-mail accounts, per
    membership, allowing up to seven members of a household to use
    the service at no additional charge.                                              
|
| |  | Parental controls to help parents guide their
    childrens online experience, including tools that limit
    access to particular areas or features on the AOLA country
    services and the Internet.
|
| |  | Mail controls that allow members to limit who may
    send them e-mail and to block specific types of e-mail.                                                                                           
|
| |  | Favorite places, which allow members to mark
    particular Internet sites or areas on our online services to
    facilitate subsequent visits to those sites or areas.                                 
|
| |  | Marketing preferences that enable members to
    elect not to receive selected marketing offers.                                                                                                        
|
| |  | A Web security browser that will encrypt
    confidential information, providing more secure online shopping.                                                                                           

Online and Offline
Help.We offer our members
both online help and offline customer support
services. Our AOLA country services help
feature assists members with their inquiries online. Offline, we
have call centers providing live customer service to members,
currently 24 hours a day, seven days a week. The cost of such
member services support is free to members subscribing to
bundled pricing plans; members subscribing to unbundled plans
incur per call charges and/or charges proportional to the amount
of time required to service the call. The cost charged for
providing call center support to members is exclusive of any
potential local telephone call charges members in each country
may incur.

Service Plans, Pricing and Collection
Mechanisms.Service plans are priced
according to usage and the level of member services support
selected by the member. In general,members are able to
select from one of several service plan combinations, including
those that follow. All references to the equivalent pricing in
U.S. dollars reflect exchange rates for the applicable local
currencies as of March 25, 2003.



| |   |                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | unlimited use plans inclusive of live member
    services support (unlimited bundled plans), which offer
    unlimited online access and unlimited live member services
    support for a fixed monthly fee;                                                                                                                                       
|
| |  | limited use plans, inclusive of live member
    services support (limited bundled plan), which offer a
    combination of a fixed monthly fee for a specified number of
    hours of online access with the option to spend additional time
    online, billed at an hourly rate, plus access to unlimited live
    member services support; and   
|
| |  | unlimited access plans, exclusive of live member
    services support (unbundled plans), which offer unlimited online
    access at a lower price than unlimited bundled plans. Member
    services support, if requested by the member, is billed at a
    flat rate per service call or based on the duration of the call
    to the call center.

In Brazil, for subscribers other than those to
the Banco Itaú co-branded service, as of March 25,
2003, we offered several service plans, priced in Brazilian
reals, including:



| |   |                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | bundled unlimited access and live member services
    support for new members, currently priced at a fixed monthly fee
    of R$34.95, which was equal to approximately U.S.$10.39; and               
|
| |  | bundled limited access plans, providing 20 hours,
    10 hours, and 5 hours of access per month, plus unlimited live
    member services support for a monthly fee of R$20.95
    (U.S.$6.27), R$15.69

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| |  |                                                                                                                                                                    
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | (U.S.$4.66) and R$10.44 (U.S.$3.11),
    respectively. Additional time online is billed at R$1.36 to
    R$3.10, or approximately U.S.$0.40 to U.S.$0.92, per hour.

The Brazil service plans described above are also
offered at discounts to monthly billing rates for members who
prepay their AOL service. Prepayment plans are offered for six
and twelve month periods. Additional discounts are offered for
payments via credit cards. The price of all Brazil service plans
includes an amount equivalent to the 5.0% ICMS (Imposto sobre
Circulação de Mercadorias e Serviços) tax levied
on telecommunications services in Brazil and paid to local tax
authorities. To date, the majority of our subscribers in Brazil,
other than subscribers to our co-branded service with Banco
Itaú, have chosen the unlimited service price plan. Banco
Itaú customers who become subscribers to the co-branded
service are currently entitled to a 20% discount off the
standard price for the unlimited service plan.

In Argentina, as of March 25, 2003, we offered
both bundled and unbundled service plans, priced in Argentine
pesos, including:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | bundled unlimited access, which includes
    unlimited call center support, for a fixed monthly fee of
    ARS$28.40 plus an additional ARS$5.96 in value added tax
    (VAT), which total approximately U.S.$11.71                                                                                                                                                                                                                                                                                                               
|
| |  | bundled limited access plans, providing 15 hours
    and 10 hours of access per month, plus unlimited live member
    services support for a monthly fee of ARS$17.40 and ARS$12.90,
    plus VAT of ARS$3.65 and ARS$2.71, respectively, which total
    approximately U.S.$7.17 and U.S.$5.32, respectively. Additional
    time online is billed at ARS$3.00 plus VAT of ARS$0.63, or
    approximately U.S.$1.02 per hour plus VAT of approximately
    U.S.$0.21; and                                                          
|
| |  | unbundled unlimited access, where costs for
    access to live member services support are incremental and based
    on the actual level of support provided, currently priced at a
    fixed monthly fee of ARS$17.40, plus VAT of ARS$3.65, which
    total approximately U.S.$7.17. Call center services support is
    provided for free during a members trial period;
    afterwards, access to live member services support is provided
    at a cost of ARS$2.00 per support call, which total
    approximately U.S.$0.68.

In addition, the Argentina service plans
described above are also offered at discounts to monthly billing
rates for members who prepay their AOLA service. Prepayment
plans are offered for six and twelve-month periods. Additional
discounts are offered for payments via credit cards.

In Mexico, we offered various service plans as of
March 25, 2003, priced in Mexican pesos, including:



| |   |                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | bundled unlimited access, which includes
    unlimited call center support, for a fixed monthly fee of
    MXN$219.00 plus MXN$32.85 in VAT, which total approximately
    U.S.$23.52;                                                                                                                                                                                       
|
| |  | bundled 10 hours of access, which includes
    unlimited call center support, for a monthly fee of MXN $149.00
    plus VAT of MXN $22.35, which total approximately U.S.$16.00 and
    additional time online billed at MXN$21.00 including VAT, or
    approximately U.S.$1.96, per hour. This service plan is
    available only to subscribers paying by credit card; and
|
| |  | bundled 5 hours of access, which includes
    unlimited call center support, for a monthly fee of MXN$79.00
    plus VAT of MXN$11.85, which total approximately U.S.$8.48 with
    additional time online billed at MXN$18.00 including VAT, or
    approximately U.S.$1.68, per hour. This service plan is
    available only to subscribers paying by credit card.        

We also offer, under certain circumstances, an
unbundled unlimited access plan in Mexico, with call center
support charged on a per call basis. This service plan is priced
at MXN$179.00 plus VAT of MXN$26.85, which total approximately
U.S.$19.22.

The Mexico plans described above are also offered
at discounts to monthly billing rates for members who prepay
their AOLA country service. Prepayment plans are offered for
six, nine and twelve-month periods. Additionally, discounts are
offered for payments via credit cards for any price plan. The
above plans exclude local telephone charges, which are borne by
members.

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In Puerto Rico, pricing is based on service plans
offered by America Online in the United States. All service
plans offered are bundled, and therefore include unlimited call
center support. Service plans offered include the following:



| |   |                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | unlimited monthly access, which includes
    unlimited call center support, for a monthly fee of U.S.$23.90;                                                               
|
| |  | 5 hours of access per month, which includes
    unlimited call center support, for a monthly fee of U.S.$9.95
    with additional time online billed at U.S.$2.95 per hour;
|
| |  | 3 hours of access, which includes unlimited
    call center support, for a monthly fee of U.S.$4.95 with
    additional time online billed at U.S.$2.50 per hour; and      
|
| |  | bring your own access, AOL usage
    through a third-party Internet provider, also with unlimited
    call center support, for a monthly fee of U.S.$14.95.              

Prepaid yearly plans offering additional
discounts are also available in Puerto Rico.

We make our AOLA country services available to a
broad audience of potential subscribers by offering multiple
mechanisms through which our members can pay us. With the
exception of Brazil, the AOLA country services and the
AOL-branded service in Puerto Rico were initially launched with
credit cards as the primary subscriber payment method. The
Brazil country service concurrently offered credit cards and a
cash payment method known as the boleto. The boleto
is a customary form of payment in Brazil under which Brazilian
banks that we designate act as conduits for collecting the
related payments. In addition, customers of certain banks in
Brazil, including customers of our Banco Itaú co-branded
service, have the option of permitting direct debits from their
accounts for purposes of paying subscriber fees. In May 2001, we
began to offer cash payment options in Mexico and Argentina.
Under cash payment alternatives, members can subscribe to our
AOLA country services without using a credit card, thus allowing
us to reach a greater number of potential members. Members in
Puerto Rico may pay their subscription fees either through
credit cards or direct debit to their bank accounts.

Since its introduction, the cash
payment alternative has accounted for a substantial
majority of all new member registrations in Brazil, Mexico and
Argentina and as of December 31, 2002 represented the
payment mechanism selected by approximately 45% of our
subscribers in Brazil (other than those to the Banco Itaú
co-branded service), 41% of our members in Mexico and 50% of our
members in Argentina. As of March 25, 2003, approximately
40% of our total subscriber base (excluding subscribers to the
Banco Itaú co-branded service) had selected payment options
other than credit card or direct debit. Although we have not
experienced any significant difficulties collecting subscription
fees from members using credit cards and direct debit
mechanisms, collection rates from members opting for the cash
payment mechanisms have been lower and less timely. We are
taking steps to improve further the validation of registration
data provided by cash payment subscribers by requiring these
subscribers to call our customer service centers to finalize
their registration. In Mexico, we are also emphasizing prepaid
subscription plans whereby subscribers pay in advance for
service periods ranging up to one year. Initial results indicate
these efforts have resulted in a reduction of the overall
percentage of members who have selected the cash method as their
payment option. In Mexico, prepaid plans are growing in
importance and currently account for about 14% of current AOL
Mexico members; however, prepaid plans are not currently
actively marketed in Brazil, Argentina and Puerto Rico.

We are taking steps to encourage conversion of
subscribers selecting cash payment options to credit and direct
debit payment options. For instance, we offer discounts to
subscribers to our AOLA country services (other than subscribers
to the Banco Itaú co-branded service) who choose the credit
card payment option.

Free Trial.We
generally make our AOLA country services and the AOL-branded
service in Puerto Rico, including Internet access, available for
free to new subscribers for a limited period of time so they can
experience our service. We currently offer most new subscribers
to our AOLA country services, including subscribers to the Banco
Itaú co-branded service, a 30-day free trial period from
the date they

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register for the service. Over the past year, we
reduced the length of the free trial period and no longer offer
three-month trial periods. This reduction was undertaken in
connection with our efforts to improve the quality of our
membership base by targeting members who are more likely to pay
their subscription fees on a timely basis. Beginning in January
2003, in Mexico, we eliminated free trial periods entirely for
members who choose cash payment options.




| |                            
| | ---------------------------
| | U.S. Hispanics Content Area

Under a one-year agreement dated as of
February 22, 2003 with America Online, we program a content
area on the AOL service in the United States targeted to the
fast-growing Hispanic community in the U.S. The content area is
located in the AOL U.S. service at AOL keyword: Latino and
includes Spanish language content from providers including
Univision.com and EFE. America Online is obligated to pay us
$750,000 per year for these programming services to reimburse us
for our costs. We also have the potential to participate in the
advertising revenue generated from this content area once
certain minimums are achieved. The amount of such advertising
revenue is not expected to be material.

AOL
Mobile

In Brazil, Mexico and Argentina, we offer AOL
Mobile service that allows consumers with Internet-ready mobile
phones to access select content and features of the AOLA country
services. In addition, subscribers to the AOLA country services
can access AOL e-mail using AOL Mobile. We offer AOL Mobile
services to customers of the following mobile phone providers:
Telefonica Celular and Nextel.

CompuServe

We have the right to market the CompuServe brand
in Latin America. From our inception until early 2002, we
received subscription fees from users of the CompuServe service.
We ceased operation of our CompuServe service in 2002.

Strategic Alliance with Banco
Itaú

In June 2000, we entered into a ten-year
strategic alliance with Banco Itaú, one of the largest
banks in Latin America. We launched a co-branded, customized
version of our America Online Brazil service that Banco
Itaú began marketing to its customers in December 2000, and
Banco Itaú is obligated to promote the co-branded service
as the principal means of accessing Banco Itaús
interactive financial services. We believe that our relationship
with Banco Itaú will enable us to expand our Internet
presence in Brazil by allowing us to gain access to Banco
Itaús online as well as offline customer base.

On December 14, 2002, we entered into an
agreement that restructured our strategic marketing alliance
with Banco Itaú. Under the new agreement, we now oversee,
in large part, the marketing activities for the co-branded
service. Banco Itaú is obligated to establish kiosks and
point-of-sale displays in hundreds of its bank branches for the
promotion of the co-branded service, which are staffed by
promoters trained by AOL Brazil. The number of promoters will
vary depending on the success of the marketing efforts, which
are reviewed quarterly. If the marketing efforts do not meet
specified goals, the number of promoters will be decreased,
subject to a floor on the number of promoters. Conversely, if
the marketing efforts exceed specified levels, the number of
promoters will be increased, subject to a maximum number of
promoters. Potential subscribers are able to sample the
co-branded service and register in the bank branches. Banco
Itaú also is required to distribute, at our direction, a
certain number of CD-ROMs containing the software for the
co-branded service, via in-branch promotions and direct mail. In
addition, Banco Itaú must produce and broadcast a certain
number of television commercials promoting the co-branded
service and is required to provide exclusive or preferred online
banking benefits to subscribers to the co-branded service. Banco
Itaú will be responsible for the cost of these marketing
efforts. The modified marketing arrangements will remain in
effect through March 2006, although the original ten-year term
of the agreement did not change.

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Banco Itaús customers who register for
the co-branded service after December 14, 2002 are entitled
to a one-month free trial period, the length of which may be
changed in the future, and, if they subscribe to the monthly
unlimited-use plan, they are entitled to a 20% discount off the
standard price. Prior to the new agreement, Banco Itaú was
required to offer its subscribers at least one hour of
subsidized usage per month following the expiration of their
trial period, although Banco Itaú was responsible to us
only for actual usage by the subscriber. Banco Itaú is no
longer required to subsidize usage for new subscribers to the
co-branded service who register after December 14, 2002;
however, Banco Itaú, at its option, may subsidize hours for
certain customers who were subscribers to the co-branded service
prior to December 14, 2002. In addition, during a short
transition period, Banco Itaú is required to pay us a
nominal amount for subscribers who have not used the service
during the previous month and who are no longer in their free
trial period. As of February 2003, approximately three-fourths
of the subscribers to the Banco Itaú co-branded service had
not used the service during the previous month. Furthermore,
substantially all of the remaining Banco Itaú subscribers
who were not in their free trial periods as of that date did not
exceed the time subsidized by Banco Itaú. We expect these
inactive subscribers to be terminated, as discussed below.

We are contacting subscribers to the co-branded
service who do not subscribe to a paid plan to encourage them to
subscribe to the 20% discounted unlimited plan or to other
subscription plans. Those who fail to elect a plan will have
their co-branded service discontinued. We expect that a majority
of current subscribers to the Banco Itaú co-branded service
who do not use the service or are not subscribers to a paid
plan, approximately 375,000 to 425,000 subscribers, will be
terminated during the first half of 2003 for failing to select a
plan, with the majority of the terminations occurring during the
first quarter of 2003. Although these terminations will decrease
our membership levels, termination of these members is not
expected to materially impact our revenues or costs since they
were not paying us or using the service.

Under the terms of our original agreement with
Banco Itaú, Banco Itaú and we established subscriber
targets for the co-branded service of 250,000 verified
subscribers at December 10, 2001 and 500,000 at
December 10, 2002 (subsequently moved to April 30,
2003) and a secondary target of a total of 1,000,000 verified
subscribers at December 10, 2002 (subsequently moved to
April 30, 2003). In addition, Banco Itaú and we had
established the following additional targets: (i) for the
12-month period ending December 10, 2003, revenues
generated from subscribers to the co-branded service would
account for at least 39% of our aggregate revenues in Brazil,
(ii) on December 10, 2004, there would be at least
2,000,000 verified subscribers, and for the twelve months ended
on that date revenues generated from subscribers to the
co-branded service would account for at least 46% of our
aggregate revenues in Brazil, and (iii) for the 12-month
period ending December 10, 2005, revenues generated from
subscribers to the co-branded service would account for at least
56% of our aggregate revenues in Brazil. Verified subscribers
are those subscribers who have used the co-branded service in
any two of the three months preceding the applicable measurement
date or who have first accessed the co-branded service in the
month prior to the applicable measurement date. Under the
agreement, if the verified subscriber level and revenue targets
were not met, Banco Itaú was required to make a reference
payment to us. Banco Itaú met the subscriber target for the
co-branded service of 250,000 verified subscribers at the
December 10, 2001 measurement date.

Under the terms of the new agreement, Banco
Itaú and we have eliminated the subscriber targets for the
period ending April 30, 2003 (which was the second
measurement period under the agreement) and have replaced the
targets for the remaining three years with targets based on a
combination of minimum revenue levels (in the same percentages
as described above for each of the next three years) and the
fulfillment of the marketing commitments described above. If
these new targets are not met, Banco Itaú is required to
make reference payments to us. The dates for measuring
performance with these new targets were moved to March 24,
2004, 2005 and 2006. The aggregate amounts that Banco Itaú
will be required to pay us if the marketing or revenue targets
are not met, which are subject to annual ceilings, have been
reduced from an aggregate of approximately $135.4 million
to approximately $60.0 million for the balance of the
initial five-year marketing period. In addition, the aggregate
amount that Banco Itaú would be

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obligated to pay us in the event of a termination
of the agreement prior to March 24, 2006 has been reduced
from approximately $158.0 million to approximately
$70.0 million.


Termination.In
general, if we or Banco Itaú commit a material breach of
our agreement and fail to cure the breach, then the
non-breaching party will have the right to terminate the
agreement after an arbiter reviews the matter and confirms the
uncured material breach. If the breach relates to an exclusivity
provision, the non-breaching party may elect to continue the
agreement with the option to be relieved of the exclusivity
provisions of the agreement applicable to it. Banco Itaú
may also terminate the agreement upon a change in control of
AOLA. A material breach of the agreement by us includes:



| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| |  | if subscribers are unable to access the
    co-branded service for specified periods of time; and
|
| |  | our breach of certain exclusivity obligations
    under the agreement.                           

Customer Service

One of the key tenets to our strategy is to focus
on customer service by offering comprehensive online and offline
customer support.

Offline Customer
Service.We have established a local
call center in Brazil and a regional call center in Argentina.
We consolidated customer call center support for our
Spanish-language members in Argentina during 2002 for the
AOL-branded service in Puerto Rico and in early 2003 for the
AOLA country service in Mexico to maximize operational
efficiencies and benefit from lower cost opportunities afforded
by the recent steep devaluation of the Argentine peso.
English-language support for members of the AOL-branded service
in Puerto Rico is provided by America Online. We presently staff
each call center with knowledgeable customer service
representatives who are available 24 hours a day, seven
days a week to assist our members in their local language with
inquiries relating to products, technical support, billing,
online security and online community monitoring. Our customer
service is free of charge for subscribers enrolled in our
bundled services plans and currently is provided through
toll-free telephone numbers. Customers enrolled in our lower
cost unbundled service plans incur per call or time-based
charges for accessing live call center support.

Our customer service representatives also
proactively communicate with new members to encourage them to
use our AOLA country service and their many features. We believe
this improves the members online experience and leads to
improved retention and increased loyalty.

Online
Help.Our AOLA country
services provide extensive help features to assist
new users coming online for the first time. Members are able to
reach customer service representatives by e-mail and AOL Instant
Messenger. The services also have the notify AOL
feature that allows members to contact us for security
assistance and the download sentry alert feature that reminds
members not to download files attached to e-mails sent from
strangers.

Content

Our AOLA interactive services feature content
obtained from leading local, regional and global content
providers and member-generated content, including movie and book
reviews, message board commentary and online discussions.

Our agreements with third-party content providers
range from simple links between our interactive services and the
providers Web site to an integration of their content into
our interactive services. We attempt to select our content
providers based on the quality and depth of their content.

In Brazil, we have entered into agreements with
over 100 content providers such as Jornal do Brasil, Banana
Games, Gazeta Mercantil, Gazeta Esportiva, Editora Delta,
Agência Estado and Paralela. In Mexico, we have entered
into agreements with 40 content providers, including
Ponchito.com, Planeta Local, Notimex and Universo Estudiantil.
In Argentina, we have entered into agreements with over 100
content providers including Asatej, Cybermapa, Familia Digital,
De Mujer and Revista Insider. We have

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entered into agreements relating to the
AOL-branded service in Puerto Rico with 19 content providers
including San Juan Star, La Estrella de Puerto Rico, Nocaut and
Revista Vea.


Advertising and Other Revenues

We generate a portion of our revenues from
advertising on our online services. Such advertising revenues
are derived from third party relationships we develop ourselves
and participation in deals arranged by America Online. Through
our relationship with America Online, we sometimes have the
opportunity to participate in America Onlines global
advertising arrangements. In Argentina, we also generate
additional revenues from other sources such as revenue sharing
agreements with telecommunications providers.

Advertising.The
country-specific and regional focus of our interactive services
enables advertisers to execute advertising and marketing
campaigns that take advantage of the common cultures and
interests of the region while retaining the ability to tailor
their campaigns to specific demographic groups. We offer our
advertisers a variety of customized programs for the marketing
of products and services, including:



| |   |                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | advertising arrangements under which we receive
    fees based on the number of advertisements displayed on our
    interactive services; and            
|
| |  | sponsorship or co-sponsorship arrangements that
    allow advertisers to sponsor an area on our interactive services
    in exchange for a fixed payment.

In return for most advertising arrangements, we
receive cash payments, the opportunity for revenue sharing, or
both. We have also entered into and will continue to seek barter
arrangements, including co-marketing and cross-promotion
agreements. To date, the number and effect of barter
arrangements that we have entered into has not been material. In
the past, sometimes we chose to accept an equity interest as
payment, or partial payment, for arrangements entered into with
development stage companies.

Current advertisers or sponsors of channels on
our America Online Brazil service include Banco Itaú and
Banco Santander. Current advertisers or sponsors of channels on
our America Online Mexico service include American Express and
Hewlett-Packard. Current advertisers or sponsors of channels on
our America Online Argentina service include Bagovit and
DeAutos.com. Current advertisers on the AOL-branded service in
Puerto Rico include Centennial and Plaza Las Americas.

Other Revenues.Because local telephone service in Latin America is often
metered, the utilization of our AOLA country services by our
members results in incremental revenues to local
telecommunications companies. To encourage incremental traffic
on their local networks by our members, local providers of
network access may enter into agreements compensating us for
routing our traffic on their networks. Currently, we have such
agreements with telecommunications providers in Argentina. Under
these agreements, we receive payments based on the number of
modems we have connected to the telecommunications
providers network. Such revenues have not been material to
date.

Marketing

Our marketing goals are to attract new consumers
to subscribe to, and to retain existing subscribers of, our AOLA
country services by building brand awareness and encouraging
consumers to try our interactive services. We make it convenient
for consumers to experience our online services. In the past,
each time we launched our online service in a new market or
released a new version of the online service software, we
typically distributed compact discs (CDs) containing
the software for our localized online service. These CDs offered
consumers the opportunity to use our online service free of
charge for a limited trial period and were distributed through a
broad range of distribution vehicles. Currently, in an effort to
target higher value members, we have largely ceased the mass
distribution of CDs. Instead, we promote distribution of our
software CDs primarily through point-of-sale displays and kiosks
located in high-traffic retail locations such as shopping malls
and large retailers. We also seek to attract members through
agreements with computer and computer peripheral manufacturers
(OEMs). For example, we have entered into agreements for the
bundling of our America Online service software with
Hewlett-Packard in Mexico and Metron, Brazils largest
personal computer manufacturer. Consumers are also able to
request

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CDs through local toll-free telephone numbers and
are able to download our online services software via the
Internet.


In the first quarter of 2002, we began to
implement measures designed to better target higher-value
members and to increase the efficiency of our member acquisition
efforts by focusing on targeted groups that have a greater
likelihood of becoming members who pay on a timely basis and
remain subscribers to our services for an extended period of
time. We hope to achieve this by focusing acquisition efforts on
marketing channels that historically have resulted in higher
subscription rates and lower acquisition costs. The success of
these measures will depend in part on our ability to identify
members that are most likely to pay their subscription fees on a
timely basis and our ability to develop software tools and
support systems designed to verify billing data for new
subscribers to our country services and block access to
subscribers who do not pay their subscription fees on a timely
basis.

As part of these efforts to target higher value
members, our revised marketing agreement with Banco Itaú
requires the establishment of kiosks and point-of-sale displays
in hundreds of Banco Itaú branches in Brazil. We have also
entered into a marketing agreement with McDonalds in
Brazil to establish interactive kiosks in McDonalds
restaurants. We will continue to use traditional advertising
campaigns, including television, radio and print publication, to
maintain and increase consumer awareness of the AOLA brand and
attract new members and users. However, as our brands have
become more established, we have reduced our reliance on
traditional advertising campaigns.

We currently have marketing arrangements in place
in Puerto Rico with Pueblo Supermarkets and Blockbuster, which
are associated with the Cisneros Group. The Cisneros Group has
agreed to attempt, on a commercially reasonable best efforts
basis, to provide us with access to the services provided by
companies associated with the Cisneros Group at rates at least
as favorable as those charged to anyone else, except for their
affiliates. However, we have no assurance that their efforts
will be successful and it is possible that we may not receive
access at favorable rates or at all.

We have also utilized and expect to continue
employing other innovative marketing strategies. For example, we
were the exclusive sponsor of Rock in Rio, a rock festival held
in Rio de Janeiro, Brazil in January 2001, which gave us the
opportunity to promote our services to over one million
concertgoers. We also have launched programs such as
sign-on-a-friend in Brazil, Mexico and Argentina
that involve paying our members a fee for each additional member
they refer to our service.

Local and Long Distance Telephone Service,
Telecommunications Network Capacity and Technology

Local and Long Distance Telephone
Service.In each of our Latin American
target markets, our members initiate access to our AOLA country
services through local and long distance telephone lines. These
lines are owned and operated by local and regional telephone
service companies. In most Latin American countries, local phone
service continues to be metered, which results in incremental
variable cost to subscribers of our country services. Metered
phone service, however, has presented us with the opportunity to
earn additional revenues or reduce our expenses through revenue
sharing agreements with local phone companies, in Brazil and
Argentina.

The telephone service industry in Latin America
continues to undergo considerable change. Many Latin American
telephone companies in recent years have undertaken significant
investments in their infrastructure. These investments have
resulted in an improvement in the quality of telephone service
in these countries. Although the telephone service industry in
Latin America is significantly less developed than in the U.S.,
we believe that the local and long distance telephone service
available is of adequate quality and sufficient capacity to meet
the needs of our current and prospective members.

Additionally, local and long distance telephone
charges have declined over time, a trend which is expected to
continue as a result of increased competition spurred by
deregulation. Nevertheless, because local calls in most Latin
American countries are metered, the total cost of Internet
access in Latin America is substantially higher than in the U.S.
Proposals are currently pending in Brazil that would implement
pricing methods, including flat-rate pricing options for data
calls, in addition to existing

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metered local telephone service. If adopted, we
believe this would increase Internet usage by lowering the
overall cost of accessing the Internet. However, governmental
approval is still needed before such proposals could go into
effect.


Telecommunications Network
Capacity.Third-party
telecommunications network providers transmit our online
services data between the local and long distance telephone
services used by our members in Latin America and America
Onlines servers, which run all of our interactive
services, in the U.S. These third-party networks provide the
modems that allow our members to establish a connection to our
online services. They also carry our data between Latin America
and the U.S. through fiber optic cable.

In Brazil, we have contracts with Embratel, an
affiliate of WorldCom, and Telefonica, and an arrangement with
Brazil Telecom, to carry our data within Brazil and to provide
the modems through which our members connect to our America
Online Brazil service. We previously had an agreement with
AT&T Brasil, which expired in December 2002. However,
AT&T Brasil still provides us with modems during a
transition period while these modems are migrated to the
networks of other vendors. Embratel and Telefonica also carry
our data from Brazil to the U.S. through their own or
affiliates networks or through third-party suppliers. Our
contracts with Telefonica and Embratel expire on
December 31, 2003 and May 25, 2005, respectively. We
also have access to capacity provided by Progress
Telecommunications Corporation (Progress) through a
contract between America Online and Progress. America Online
invoices us for the capacity used by us under this agreement. In
Mexico, we have entered into a network contract with Avantel, an
affiliate of WorldCom. Our contract with Avantel expires in
January 2005. We also have an arrangement with Telefonos de
Mexico (Telmex) under which we obtain additional network
capacity. In Argentina, we entered into a network contract with
Impsat, which expired in December 2002; however, modems are
being provided to us under a transition period while we are in
negotiations with Impsat regarding a possible new agreement.

In each of our target markets we work closely
with our network providers to ensure satisfactory network
performance. We work with network providers that have multiple
operations centers for network monitoring, and we have developed
quality control standards that our providers must meet.

Fiber optic cable is our preferred means of
transmitting data between Latin America and the U.S. because it
offers greater capacity and is generally more reliable than
satellite-based transmissions. All of our data transmitted
between the U.S. and Mexico, Brazil and Argentina is transmitted
by fiber optic cable.

In each country where we operate our AOLA country
services, we believe that we have secured adequate network
capacity. To ensure this going forward, we regularly forecast
our needs and make adjustments based on marketing projections.
We believe our current suppliers can and will provide us with
sufficient network capacity. However, this capacity is based on
our expectations of use and growth in specific geographic areas.
Our contracts usually commit us to purchase a minimum amount of
network capacity. If the number of our subscribers, or their use
of our online services, does not increase, our per unit network
costs will not correspondingly decrease.

Technology.Our
servers are owned and maintained by America Online in three
locations in Virginia in the United States. The AOLA content and
the tools to operate our online services are located on these
servers. We have also installed servers in Brazil to further
improve the member experience.

Our members can access our online services only
through personal computers using the Windows 95, 98, ME,
2000 and XP operating systems and our Windows-compatible online
service software. In addition, users of WAP enabled phones in
each country can access certain features and content of the AOLA
country services. Our online services support the V.90 standards
for access at 56 kilobits per second.

Competition

We operate in the highly competitive and rapidly
evolving businesses of online services and Internet access,
online advertising and commerce. We compete with providers of
Spanish- and Portuguese-language interactive services, including
Internet access services, portals, search engines and Web
directories. We

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compete in the broader Latin American regional
market as well as in country specific local markets. Our
principal regional market competitors include Terra Lycos, an
affiliate of Telefonica, and Microsoft (MSN). Our primary local
competitors in our core target countries include Universo Online
(UOL) and free services provided by Internet Gratis
(iG), Super11 and iBest in Brazil; Telmex in Mexico, which has
an alliance with Microsoft for the development of content and
offers a Prodigy-branded service; Ciudad Internet and Arnet,
which is owned by Telecom, in Argentina; and Puerto Rico
Telephone Company, AT&T, Earthlink and Juno in Puerto Rico.
Providers of free Internet access in Brazil have continued to
attract significant numbers of new users.


We also compete for advertising revenues with
traditional media such as newspapers, magazines, radio and
television.

Our online service subscription fees are
generally higher than those offered by competing online service
providers because we consider our service to be a premium
service. We continually assess our pricing strategy and may make
modifications as necessary. We believe that the principal
competitive factors in generating advertising revenue include
not only the number of visitors to an online service or Internet
site, but also demographics of visitors.

The AOL License Agreement, Intellectual
Property and Proprietary Rights

Our
License

Under our license agreement with America Online,
we have:



| |   |                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a royalty free, exclusive license to offer
    AOL-branded PC-based online services in Latin America;                                                                                                                                                                                                             
|
| |  | the exclusive right to offer AOL-branded TV-based
    online services in Latin America;                                                                                                                                                                                                                           
|
| |  | the exclusive right to offer in Latin America any
    AOL-branded wireless-based online services developed by America
    Online for commercial launch on or before August 7, 2004;
    and                                                                                                                       
|
| |  | a non-exclusive license to offer a localized
    network of AOL-branded portals in Latin America, with an option
    to license exclusively any Spanish or Portuguese-language
    AOL-branded portals that America Online may develop for the
    Latin American market, subject to our payment of a license fee.

We also have the rights to use all related
America Online proprietary software and technology as well as
AOL-registered domain names and principal trademarks in Latin
America.

We have interconnected our America Online Brazil,
America Online Mexico and America Online Argentina country
services to the services provided by America Online and its
international affiliates. This interconnection provides our
members with access to the AOL services and AOL international
interactive services and permits AOL members worldwide to access
the AOLA country services. America Online is obligated to
license to us, or to use commercially reasonable efforts to
obtain for us, the license rights it has in third-party software
products used in operating the AOL-branded interactive services.
These third-party licenses may be royalty-free or may require
payments by us.

From December 15, 1998 through
December 31, 2002, we did not make any payments to America
Online for services received under the license agreement. We
believe that annual payments for these services will not exceed
$60,000 in the future.

We have the same rights described above to offer
CompuServe-branded services, although we no longer offer the
CompuServe-branded service. We only have the right to offer AOL-
and CompuServe-branded interactive services. We also have a
non-exclusive right to sell advertising on parts of America
Onlines ICQ service in Latin America. We do not have the
right to offer Netscape, MapQuest, Moviefone or any other
non-AOL-branded interactive service owned by America Online.

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Termination
of our exclusive rights

We will lose the exclusivity of our licensed
rights:



| |   |                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | to AOL-branded PC-based online services, upon the
    later of December 15, 2003 or the date on which either
    America Online or the Cisneros Group owns 20% or less of the
    outstanding voting stock of AOLA outstanding on August 7,
    2000.
|
| |  | to AOL-branded TV-based and wireless-based online
    services, upon the later of August 7, 2005 or the date on
    which either America Online or the Cisneros Group owns 20% or
    less of the outstanding voting stock of AOLA.                  

For PC-based online services, the threshold
number of shares is lowered if:



| |   |                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------
| |  | an additional strategic stockholder is admitted
    as a stockholder of AOLA;                            
|
| |  | we issue more shares of our capital stock; or                                                            
|
| |  | America Online exercises a warrant it holds to
    purchase 16,541,250 shares of our voting common stock.

For TV and wireless-based online services, the
threshold number of shares is lowered if:



| |   |                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------
| |  | an additional strategic stockholder is admitted
    as a stockholder of AOLA; or                         
|
| |  | America Online exercises a warrant it holds to
    purchase 16,541,250 shares of our voting common stock.

America Online may terminate our rights under the
license if we materially breach its terms.

Trademarks
and Domain Names

America Online has granted us rights to use in
Latin America its registered trademarks containing the AOL brand
and domain names, including www.aola.com. We believe that
America Online is taking appropriate steps to protect its
trademarks and domain name rights in Latin America.

We rely on a combination of contract provisions
and patent, copyright, trademark and trade secret laws to
protect our rights in our online services as licensed to us by
America Online. We have distributed and will continue to
distribute software, licensed to us by America Online, for our
online services under agreements that grant members a license to
use the software. We rely on the protections afforded primarily
by copyright laws to protect against the unauthorized
reproduction of the software. We also rely in part on electronic
licenses which members do not manually sign, and instead agree
to by clicking a button on their monitor screen. These licenses
may be unenforceable under the laws of Brazil, Mexico and
Argentina and other jurisdictions in Latin America. We attempt
to protect our trade secrets and other confidential information
through agreements with employees and consultants.

Although we intend to protect our rights
vigorously, these measures may not be successful. Policing
unauthorized use of the software for our online services is
difficult and the steps taken may not prevent the
misappropriation of our licensed technology and intellectual
property rights. Moreover, effective patent, trademark, trade
secret and copyright protection may be unavailable or limited in
Latin America.

America Online has obtained U.S. federal
registrations for a number of trademarks and service marks,
including AOL, America Online, Buddy List, and AOLs
triangle design logo, and has trademark rights in the U.S. and
abroad in many other proprietary names, including AOL Instant
Messenger, Youve Got Mail and CompuServe.

We believe that our exercise of our licensed
rights under our agreement with America Online does not infringe
on the proprietary rights of third parties. However, America
Online has received communications from third parties asserting
that features, contents or names of some of our services may
infringe their patents, copyrights, trademarks and other rights.
We are not involved in any litigation of this type that would
have a material adverse effect on our ability to develop, market
and sell or operate our

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services. We cannot assure that in the future
third parties will not make infringement claims against us for
current or future features or the content of our services or
that any claim would not result in litigation or require us to
enter into royalty or other similar arrangements. Third parties
may also challenge America Onlines marks and these
challenges may result in limitation or loss of our licensed
rights to America Onlines proprietary marks.


Government Regulation and Legal
Uncertainties

In Brazil, there are no license or registration
requirements applicable to interactive services. However, the
Brazilian legislature is considering various laws that would
regulate interactive service providers, including laws that
would create potential liabilities for interactive service
providers whose members offer illegal goods, services or
information through their service, laws allowing
telecommunication providers to provide interactive services and
laws regarding taxation of interactive service providers. We
cannot predict at this time whether or not these bills will be
enacted or, if enacted, whether they will undergo major changes
or what any potential effect on our business could be.

We believe regulations relating to local
telephone pricing are likely to be modified in Brazil, including
a possible change that would permit alternative rate pricing for
Internet access calls, including flat-rate pricing. We believe
that this change, if enacted, could encourage Internet usage. In
connection with this proposed regulation, rules governing
interconnection fees between telecommunications providers may be
modified. We cannot predict at this time whether or not these
regulations will be enacted or, if enacted, what form of
alternative rate pricing might be adopted, or what any potential
effect on our business could be. These changes would also likely
impact the competition for interactive services in Brazil,
although we cannot predict what the impact may be.

In Mexico, the federal telecommunications law
requires providers of value-added services, including Internet
access services, to register with the Mexican federal
telecommunications commission. We have complied with this
registration requirement.

In Argentina, Internet access providers must hold
a correspondent license from the Argentine telecommunications
authority. We have received this license. The Argentine national
government does not specifically regulate information available
on the Internet. However, Argentine laws and regulations on
consumer protection, contract, competition and advertising
generally apply to portal and commerce service providers. In
this respect, several judicial precedents have recognized the
applicability of commercial, criminal and civil law to Internet
matters.

We intend to support proposals designed to
enhance market access and competition in the offering of both
dial-up and high-speed interactive services in our target
markets and believe that the adoption of these proposals would
have a beneficial effect on the development of interactive
services. We are unable, at this time, to predict whether any of
these proposals will be adopted.

Employees

As of December 31, 2002, we had 1,178
full-time and contract employees, of whom 727 were located in
Brazil, 274 in Mexico, 110 in Argentina, 48 in the United States
and 19 in Puerto Rico.

Our Executive Officers

Please see Item 10 of Part III of this
annual report for information regarding our executive officers.

Available Information

We make available free of charge on or through
our Internet website our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on
Form 8-K and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (Exchange Act) as soon as
reasonably practicable after we electronically file such
material with, or furnish it to, the SEC. Our Internet address
is http://www.aola.com/investors/.

15



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##### Table of Contents






Item 2.     Properties

Our principal executive office is located in
approximately 37,000 square feet of office space in Fort
Lauderdale, Florida, under a lease that expires in March 2006.
Our Brazilian call center is located in Santo Andre, Sao Paulo
state, in approximately 25,866 square feet of office space under
a lease expiring in August 2004 and our Brazilian headquarters
are located in São Paulo in approximately 10,570 square
feet of office space under a lease expiring in July 2005. Our
Mexican headquarters are located in Mexico City in approximately
19,900 square feet of office space under a lease expiring in
March 2005. Our Argentina headquarters and call center, located
in Buenos Aires, is approximately 14,000 square feet of office
space under a lease expiring in November 2003. Our Puerto Rico
headquarters, located in San Juan, is approximately 5000 square
feet of office space under a lease which expires in March 2008.




Item 3.     Legal
Proceedings

We are not a party to any material litigation in
any court, and our management is not aware of any contemplated
proceedings by any governmental authority against us that would
have a material impact on our financial condition.




Item 4.     Submission
of Matters to a Vote of Security Holders

On October 3, 2002, the holders of all our
outstanding preferred stock voted by unanimous written consent
to approve a preferred stock conversion agreement among us,
America Online, AOLTW, Aspen Investments LLC (Aspen)
and Atlantis Investments LLC (Atlantis), under which
AOL, AOLTW, Aspen and Atlantis agreed to convert a portion of
the preferred stock held by them into shares of class A
common stock. This approval included amending our fourth
restated certificate of incorporation, preparing a proxy
statement, and issuing shares of class A common stock under
the conversion agreement.

On November 1, 2002, these preferred
stockholders voted by unanimous written consent to approve the
reversal of a consolidation structure which had been implemented
by AOL Mexico S. de R.L. de C.V. (AOL Mexico), under
which certain business activities which had previously been
transferred to a subsidiary of AOL Mexico, would be transferred
back to AOL Mexico.

On December 4, 2002, these preferred
stockholders voted by unanimous written consent to approve an
amendment to the strategic interactive services and marketing
agreement among us, AOL Brasil Ltda. and Banco Itaú.

On December 20, 2002, we held a special
meeting of stockholders to vote on the following proposals:

Proposal 1:To
amend our fourth restated certificate of incorporation to reduce
the number of shares of our series B preferred stock and
series C preferred stock needed to avoid the conversion of
all of the series B preferred stock and series C
preferred stock.

|                                                  |  |     |               |         |  |         |         |           |  |  |        |  |  |  |            | 
|------------------------------------------------- |  | --- | ------------- | ------- |  | ------- | ------- | --------- |  |  | ------ |  |  |  | ---------- | 
|                                                  |  |     |               |         |  |         |         | Broker   
|Voting Stockholder                                |  | For |               | Against |  | Abstain |         | Non-Votes
|                                                  |  |     |               |         |  |         |         |          
|Class A common stock                              |  |     | 43,817,348    |         |  |         | 505,401 |           |  |  | 79,790 |  |  |  | 18,604,462 | 
|Series B preferred stock (10 votes per
    share) |  |     | 1,216,924,310 |         |  |         | 0       |           |  |  | 0      |  |  |  |            | 
|Series C preferred stock (10 votes per
    share) |  |     | 1,114,139,940 |         |  |         | 0       |           |  |  | 0      |  |  |  |            | 

Proposal 2:To
amend the companys fourth restated certificate of
incorporation to:

(A) effect
a 1-for-2 reverse stock split.

|                                                  |  |     |               |         |  |         |         |  |  |  |        | 
|------------------------------------------------- |  | --- | ------------- | ------- |  | ------- | ------- |  |  |  | ------ | 
|Voting Stockholder                                |  | For |               | Against |  | Abstain
|                                                  |  |     |               |         |  |        
|Class A common stock                              |  |     | 62,045,668    |         |  |         | 892,481 |  |  |  | 68,852 | 
|Series B preferred stock (10 votes per
    share) |  |     | 1,216,924,310 |         |  |         | 0       |  |  |  | 0      | 
|Series C preferred stock (10 votes per
    share) |  |     | 1,114,139,940 |         |  |         | 0       |  |  |  | 0      | 

16



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(B) effect
a 1-for-3 reverse stock split.

|                                                  |  |     |               |         |  |         |         |  |  |  |        | 
|------------------------------------------------- |  | --- | ------------- | ------- |  | ------- | ------- |  |  |  | ------ | 
|Voting Stockholder                                |  | For |               | Against |  | Abstain
|                                                  |  |     |               |         |  |        
|Class A common stock                              |  |     | 61,959,738    |         |  |         | 970,007 |  |  |  | 77,256 | 
|Series B preferred stock (10 votes per
    share) |  |     | 1,216,924,310 |         |  |         | 0       |  |  |  | 0      | 
|Series C preferred stock (10 votes per
    share) |  |     | 1,114,139,940 |         |  |         | 0       |  |  |  | 0      | 

(C) effect
a 1-for-5 reverse stock split.

|                                                  |  |     |               |         |  |         |           |  |  |  |        | 
|------------------------------------------------- |  | --- | ------------- | ------- |  | ------- | --------- |  |  |  | ------ | 
|Voting Stockholder                                |  | For |               | Against |  | Abstain
|                                                  |  |     |               |         |  |        
|Class A common stock                              |  |     | 61,851,474    |         |  |         | 1,068,256 |  |  |  | 87,271 | 
|Series B preferred stock (10 votes per
    share) |  |     | 1,216,924,310 |         |  |         | 0         |  |  |  | 0      | 
|Series C preferred stock (10 votes per
    share) |  |     | 1,114,139,940 |         |  |         | 0         |  |  |  | 0      | 

(D) effect
a 1-for-7 reverse stock split.

|                                                  |  |     |               |         |  |         |           |  |  |  |        | 
|------------------------------------------------- |  | --- | ------------- | ------- |  | ------- | --------- |  |  |  | ------ | 
|Voting Stockholder                                |  | For |               | Against |  | Abstain
|                                                  |  |     |               |         |  |        
|Class A common stock                              |  |     | 61,732,912    |         |  |         | 1,174,878 |  |  |  | 99,211 | 
|Series B preferred stock (10 votes per
    share) |  |     | 1,216,924,310 |         |  |         | 0         |  |  |  | 0      | 
|Series C preferred stock (10 votes per
    share) |  |     | 1,114,139,940 |         |  |         | 0         |  |  |  | 0      | 

(E) effect
a 1-for-10 reverse stock split.

|                                                  |  |     |               |         |  |         |           |  |  |  |        | 
|------------------------------------------------- |  | --- | ------------- | ------- |  | ------- | --------- |  |  |  | ------ | 
|Voting Stockholder                                |  | For |               | Against |  | Abstain
|                                                  |  |     |               |         |  |        
|Class A common stock                              |  |     | 61,750,588    |         |  |         | 1,157,138 |  |  |  | 99,275 | 
|Series B preferred stock (10 votes per
    share) |  |     | 1,216,924,310 |         |  |         | 0         |  |  |  | 0      | 
|Series C preferred stock (10 votes per
    share) |  |     | 1,114,139,940 |         |  |         | 0         |  |  |  | 0      | 

(F) effect
a 1-for-15 reverse stock split.

|                                                  |  |     |               |         |  |         |           |  |  |  |         | 
|------------------------------------------------- |  | --- | ------------- | ------- |  | ------- | --------- |  |  |  | ------- | 
|Voting Stockholder                                |  | For |               | Against |  | Abstain
|                                                  |  |     |               |         |  |        
|Class A common stock                              |  |     | 61,721,159    |         |  |         | 1,184,468 |  |  |  | 101,374 | 
|Series B preferred stock (10 votes per
    share) |  |     | 1,216,924,310 |         |  |         | 0         |  |  |  | 0       | 
|Series C preferred stock (10 votes per
    share) |  |     | 1,114,139,940 |         |  |         | 0         |  |  |  | 0       | 




PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters

Market Price of Common Stock

Our class A common stock is traded on the
Nasdaq SmallCap Market under the symbol AOLA. From
August 8, 2000 to June 21, 2002, our class A
common stock traded on the Nasdaq National Market. From
November 7, 2002 to January 29, 2003, our class A
common stock traded under the ticker symbol AOLAC
because our stock was under a conditional listing period due to
non-compliance with Nasdaqs minimum market capitalization
requirement for continued listing as set forth in Marketplace
Rule 4310(c)(2)(B)(ii)). We regained compliance with the
minimum listing requirement through the conversion of preferred
stock into class A common stock by America Online and the
Cisneros Group in January 2003. No shares of our class B common
stock or class C common stock are outstanding and, accordingly,
no established trading market for our class B common stock or
class C common stock exists. The following table sets forth, for
the periods indicated, the low and high sales prices per share
of the class A common stock as reported on the Nasdaq National
Market or Nasdaq SmallCap Market, as applicable,

17



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since January 1, 2001. The table also sets
forth the closing price of our class A common stock as of the
last trading day in the period indicated.


|                                              |  |     |      |      |  |       |      |  |  |   |      | 
|--------------------------------------------- |  | --- | ---- | ---- |  | ----- | ---- |  |  | - | ---- | 
|                                              |  | Low |      | High |  | Close
|                                              |  |     |      |      |  |      
|2002                                          |  |     |      |      |  |       |      |  |  |   |      | 
|October 1, 2002 through December 31,
    2002 |  | $   | 0.17 |      |  | $     | 0.97 |  |  | $ | 0.37 | 
|July 1, 2002 through September 30, 2002       |  |     | 0.24 |      |  |       | 0.63 |  |  |   | 0.24 | 
|April 1, 2002 through June 30, 2002           |  |     | 0.51 |      |  |       | 2.40 |  |  |   | 0.60 | 
|January 1, 2002 through March 31, 2002        |  |     | 2.02 |      |  |       | 4.16 |  |  |   | 2.25 | 
|2001                                          |  |     |      |      |  |       |      |  |  |   |      | 
|October 1, 2001 through December 31,
    2001 |  | $   | 2.60 |      |  | $     | 6.28 |  |  | $ | 4.55 | 
|July 1, 2001 through September 30, 2001       |  |     | 2.84 |      |  |       | 8.54 |  |  |   | 3.29 | 
|April 1, 2001 through June 30, 2001           |  |     | 3.60 |      |  |       | 9.25 |  |  |   | 8.30 | 
|January 1, 2001 through March 31, 2001        |  |     | 2.63 |      |  |       | 6.38 |  |  |   | 4.69 | 

Stockholders

There were 488 holders of record of class A
common stock as of March 25, 2003.

Dividends

We have never declared or paid any cash dividends
on our shares of class A common stock. We intend to retain any
earnings to fund the operation of our business. Therefore, we do
not anticipate paying any cash dividends on our shares of class
A common stock in the future. In addition, under the terms of
our senior convertibles notes (see discussion in
Item 7  Managements Discussion and
Analysis of Financial Condition and Results of
Operations  Liquidity and Capital Resources), we are
not permitted, without the consent of the holders of the notes,
to declare or pay any dividends on our capital stock other than
dividends on preferred stock in accordance with the terms of
such preferred stock and payable only in additional shares of
preferred stock.

The special committee of our board of directors,
which consists of one director appointed by each of America
Online and the Cisneros Group, must unanimously approve the
payment of any dividends before our full board of directors can
approve a dividend payment. Further, before the payment of any
dividends on our shares of class A common stock, we must
pay dividends, payable in series B and series C
preferred stock, as and when declared by our board of directors,
on our shares of series B and series C preferred stock.

18



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##### Table of Contents






Item 6.     Selected
Financial Data

The following selected financial data should be
read in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations
and our consolidated financial statements and notes to those
statements.

(In thousands, except share and per share
data)

|                                                         |                       |                     |            |              |        |              |            |                   |        |               |            |        |        |   |            |       |        |   |         |       |       | 
|-------------------------------------------------------- | --------------------- | ------------------- | ---------- | ------------ | ------ | ------------ | ---------- | ----------------- | ------ | ------------- | ---------- | ------ | ------ | - | ---------- | ----- | ------ | - | ------- | ----- | ----- | 
|                                                         |                       |                     |            |              |        |             
|                                                         |                       | Twelve Months Ended |            |              |        | Twelve      
|Condensed                                                |                       |                     |            | Six Months   |        | Months      
|Consolidated                                             |                       | December 31,        |            | December 31, |        | December 31, |            | Ended             |        | Ended        
|Operations                                               |                       | 2002                |            | 2001         |        | 2000         |            | December 31, 2000 |        | June 30, 2000
|                                                         |                       |                     |            |              |        |              |            |                   |        |              
|                                                         |                       |                    
|                                                         |                       | (unaudited)        
|Revenues:                                                |                       |                     |            |              |        |              |            |                   |        |               |            |        |        |   |            |       |        |   |         |      
|                                                         | Subscriptions         |                     | $          | 62,998       |        |              | $          | 49,918            |        |               | $          | 11,791 |        |   | $          | 8,050 |        |   | $       | 5,848 |      
|                                                         | Advertising and other |                     |            | 9,109        |        |              |            | 16,525            |        |               |            | 7,237  |        |   |            | 4,423 |        |   |         | 3,352 |      
|                                                         |                       |                     |            |              |        |              |            |                   |        |               |            |        |        |   |            |       |        |   |         |      
|                                                         |                       | Total revenues      |            | $            | 72,107 |              |            | $                 | 66,443 |               |            | $      | 19,028 |   |            | $     | 12,473 |   |         | $     | 9,200 | 
|                                                         |                       |                     |            |              |        |              |            |                   |        |               |            |        |        |   |            |       |        |   |         |      
|Loss from operations                                     |                       | $                   | (156,629   | )            |        | $            | (295,068   | )                 |        | $             | (271,300   | )      |        | $ | (200,115   | )     |        | $ | (99,924 | )    
|                                                         |                       |                     |            |              |        |              |            |                   |        |               |            |        |        |   |            |       |        |   |         |      
|Net loss applicable to common stockholders               |                       | $                   | (180,591   | )            |        | $            | (307,320   | )                 |        | $             | (275,388   | )      |        | $ | (205,662   | )     |        | $ | (97,913 | )    
|                                                         |                       |                     |            |              |        |              |            |                   |        |               |            |        |        |   |            |       |        |   |         |      
|Loss per common share, basic and diluted                 |                       | $                   | (2.69      | )            |        | $            | (4.66      | )                 |        | $             | (11.26     | )      |        | $ | (4.24      | )     |        |   | N/A     |      
|                                                         |                       |                     |            |              |        |              |            |                   |        |               |            |        |        |   |            |       |        |   |         |      
|Weighted average number of common shares
    outstanding |                       |                     | 67,067,603 |              |        |              | 66,017,796 |                   |        |               | 24,447,518 |        |        |   | 48,496,436 |       |        |   | N/A     |      
|                                                         |                       |                     |            |              |        |              |            |                   |        |               |            |        |        |   |            |       |        |   |         |      
|                                                        
|Cash and cash equivalents                                |                       | $                   | 75,501     |              |        | $            | 46,676     |                   |        |               |            |        |        | $ | 132,866    |       |        | $ | 33,321  |      
|Total assets                                             |                       | $                   | 100,274    |              |        | $            | 84,384     |                   |        |               |            |        |        | $ | 179,031    |       |        | $ | 55,640  |      
|Stockholders equity (capital deficiency)                |                       | $                   | (97,086    | )            |        | $            | 21,123     |                   |        |               |            |        |        | $ | 123,821    |       |        | $ | 23,319  |      
|Working capital                                          |                       | $                   | 53,001     |              |        | $            | 806        |                   |        |               |            |        |        | $ | 111,243    |       |        | $ | 13,261  |      

For a discussion of material uncertainties with
respect to the data presented that may make such data not
indicative of our future financial condition or results of
operations, see Item 7  Managements
Discussion and Analysis of Financial Condition and Results of
Operations.




Item 7.     Managements
Discussion and Analysis of Financial Condition and Results of
Operations

Overview of Fiscal
2002.In the first quarter of 2002, we
began to implement measures designed to better target
higher-value members and to increase the efficiency of our
member acquisition efforts by focusing on targeted groups that
have a greater likelihood of becoming members who pay on a
timely basis and remain subscribers to our services for an
extended period of time. As a result, we focused our acquisition
efforts on marketing channels that historically have resulted in
higher subscription rates and lower acquisition costs. The
success of these measures will depend in part on our ability to
identify members that are most likely to pay their subscription
fees on a timely basis and our ability to continue to develop
software tools and support systems designed to verify billing
data for new subscribers to our country services.

As a result of these efforts to target
higher-value members, we experienced reductions in our sales and
marketing costs primarily as a result of moving away from the
mass distribution of non-solicited CDs containing our software
and towards an approach focused mainly on acquiring members
through direct customer interaction channels such as the
establishment of staffed kiosks in high-traffic locations and
through original equipment manufacturers (OEMs). Additionally,
we also experienced improvements in our operating cost structure
as the scope of our network and call center support operations
was made

19



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##### Table of Contents



proportional to the resulting reduced membership
base. Telecommunications and network expense were reduced by
resizing our network to meet lower peak demand, which was
achieved by restricting access for members who do not make
timely membership fee payments and through the termination of
members who were delinquent in their payments. Our rate of
member acquisitions was also affected as our more targeted
marketing efforts resulted in lower rates of new member
additions. Over the longer term, we hope that our strategy of
focusing on higher value members will result in lower overall
membership turnover.


A crucial element of our effort to target
higher-value members is our increased focus on improved
validation of registration data from subscribers, especially for
subscribers who have chosen the cash payment option. The
objective is to better identify members who are more likely to
pay us, as well as to continue to terminate members that are
delinquent in paying us. Our greater selectivity in the
acquisition of new members has resulted in fewer new
registrations, but which we hope will eventually be of higher
quality. As a result, our membership base at December 31,
2002, experienced a slight reduction of 2.2% to
1.18 million members, as compared with 1.20 million
ending members at September 30, 2002, driven by membership
turnover and termination of members who were delinquent in their
payments to us. During the quarter ended December 31, 2002,
our paying membership base improved slightly as compared to the
quarter ended September 30, 2002.

Most benefits from these initiatives represented
one-time adjustments to our cost structure and were largely
implemented during calendar 2002. Although we expect some
additional benefits going forward, we believe these benefits
will be significantly less in absolute terms and indeed, these
costs will begin to increase in absolute terms if our overall
membership base begins to increase again. To date, our focus on
more efficiently targeting higher quality members has been
successful in significantly reducing costs; however, it had only
marginally increased the number of paid members.

We expect that our membership base, excluding
subscribers to the Banco Itaú co-branded service, will
decrease by approximately 100,000 members in the first quarter
of 2003, as we continue to terminate members that are delinquent
in the payment of subscription fees to us and reduce marketing
expenditures by more narrowly targeting marketing activities
aimed at attracting new, higher-value members. As part of the
revised Banco Itaú agreement, members to the co-branded
service will be required to select a specific price plan. Those
who do not select a plan will be terminated from the co-branded
service. We expect that a large majority of members to the
co-branded service with low levels of activity will not choose a
price plan and will therefore be terminated. We expect
membership to our Banco Itaú co-branded service to decrease
by 375,000 to 425,000 members during the first half of 2003 as a
result of the termination of members who do not choose a paid
plan of the co-branded service, with the majority of the
terminations occurring during the first quarter of 2003.
Termination of these members is not expected to materially
impact our revenues or costs since they were not paying us or
using the service. As of December 31, 2002, approximately
540,000 members, or 45.7% of our total ending membership base,
was comprised of members of the Banco Itaú co-branded
service. Of these, a significant majority had not accessed the
service in the past month.

We also expect that over the near term a
substantial percentage of our total subscribers will continue to
be in free trial periods, member retention programs or not
making timely payment. Timing of the growth in our membership
base will be significantly influenced by the extent of the
success of the revised marketing agreement with Banco Itaú.
We are also currently in discussions with other retailers and
financial institutions concerning additional marketing
agreements in our effort to attract higher quality members. For
example, in January 2003, we entered into an agreement with
McDonalds in Brazil to market our service via kiosks in
hundreds of McDonalds restaurants in Brazil. Timing of
implementation of such agreements will also impact our
non-Itaú membership base.

Consolidated Results of Operations

In December 2000, we changed our fiscal year-end
from June 30 to December 31. As a consequence, the
twelve-month period ended December 31, 2000 reflects
unaudited amounts.

20



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##### Table of Contents



Revenues.Total
revenues consist of subscription revenues and advertising and
other revenues. The following table presents the components of
our revenues for the years ended December 31, 2002 and
December 31, 2001, the twelve-month period ended
December 31, 2000, and the three-month periods ended
December 31, 2002 and 2001.

(Dollars in thousands)

|                         |                       |                    |        |                     |   |        |        |              |   |              |      |        |   |              |        |        |   |   |        |        |   |  |     |       |   |   |        |        |   |  |       |       |  
|------------------------ | --------------------- | ------------------ | ------ | ------------------- | - | ------ | ------ | ------------ | - | ------------ | ---- | ------ | - | ------------ | ------ | ------ | - | - | ------ | ------ | - |  | --- | ----- | - | - | ------ | ------ | - |  | ----- | ----- | -
|                         |                       |                    |        |                    
|                         |                       | Three Months Ended |        | Twelve Months Ended
|                         |                       |                    |        |                    
|                         |                       | December 31,       |        | December 31,        |   | %      |        | December 31, |   | December 31, |      | %      |   | December 31, |        | %     
|                         |                       | 2002               |        | 2001                |   | Change |        | 2002         |   | 2001         |      | Change |   | 2000         |        | Change
|                         |                       |                    |        |                     |   |        |        |              |   |              |      |        |   |              |        |       
|                         |                       |                    |        |                     |   |        |        |              |   |              |      |        |   |             
|                         |                       | (unaudited)        |        |                     |   |        |        |              |   |              |      |        |   |             
|Revenues                 |                       |                    |        |                     |   |        |        |              |   |              |      |        |   |              |        |        |   |   |        |        |   |  |     |       |   |   |        |        |   |  |       |      
|                         | Subscriptions         |                    | $      | 15,304              |   |        | $      | 15,263       |   |              |      | 0.3    | % |              | $      | 62,998 |   |   | $      | 49,918 |   |  |     | 26.2  | % |   | $      | 11,791 |   |  |       | 323.3 | %
|                         | Advertising and other |                    |        | 2,541               |   |        |        | 3,417        |   |              |      | (25.6  | ) |              |        | 9,109  |   |   |        | 16,525 |   |  |     | (44.9 | ) |   |        | 7,237  |   |  |       | 128.3 |  
|                         |                       |                    |        |                     |   |        |        |              |   |              |      |        |   |              |        |        |   |   |        |        |   |  |     |       |   |   |        |        |   |  |       |      
|                         |                       | $                  | 17,845 |                     |   | $      | 18,680 |              |   |              | (4.5 | )%     |   | $            | 72,107 |        |   | $ | 66,443 |        |   |  | 8.5 | %     |   | $ | 19,028 |        |   |  | 249.2 | %    
|                         |                       |                    |        |                     |   |        |        |              |   |              |      |        |   |              |        |        |   |   |        |        |   |  |     |       |   |   |        |        |   |  |       |      
|Distribution of revenues |                       |                    |        |                     |   |        |        |              |   |              |      |        |   |              |        |        |   |   |        |        |   |  |     |       |   |   |        |        |   |  |       |      
|                         | Subscriptions         |                    |        | 85.8                | % |        |        | 81.7         | % |              |      |        |   |              |        | 87.4   | % |   |        | 75.1   | % |  |     |       |   |   |        | 62.0   | % |  |       |       |  
|                         | Advertising and other |                    |        | 14.2                | % |        |        | 18.3         | % |              |      |        |   |              |        | 12.6   | % |   |        | 24.9   | % |  |     |       |   |   |        | 38.0   | % |  |       |       |  
|                         |                       |                    |        |                     |   |        |        |              |   |              |      |        |   |              |        |        |   |   |        |        |   |  |     |       |   |   |        |        |   |  |       |      
|                         |                       |                    | 100.0  | %                   |   |        | 100.0  | %            |   |              |      |        |   |              | 100.0  | %      |   |   | 100.0  | %      |   |  |     |       |   |   | 100.0  | %      |   |  |       |      
|                         |                       |                    |        |                     |   |        |        |              |   |              |      |        |   |              |        |        |   |   |        |        |   |  |     |       |   |   |        |        |   |  |       |      

Total revenues.As
illustrated on Table 2, our total revenues consist of
subscription revenues as well as revenues generated from
advertising and other revenue sources.

Our total revenues for the year ended
December 31, 2002 were $72.1 million, up 8.5% from
$66.4 million for 2001. During fiscal 2002, subscription
revenues grew 26.2% to $63.0 million and represented 87.4%
of total revenues, up from $49.9 million and 75.1% of total
revenues in fiscal 2001. The growth in subscription revenues was
partially offset by a decline of $7.4 million, or 44.9%, in
advertising and other revenue to $9.1 million during the
fiscal year ended December 31, 2002. Excluding the effect
of the stronger U.S. dollar relative to foreign currencies, in
constant currency terms total revenues increased 24.9% during
2002 as compared to 2001.

During the year ended December 31, 2002,
revenues from Brazil increased to $30.8 million, up 15.1%
from $26.7 million in the year ended December 31,
2001, while revenues from Mexico rose 8.1% to
$27.2 million. Revenue from Puerto Rico increased 134.8%,
or $6.5 million, to $11.4 million, while revenues from
Argentina decreased $6.9 million, or 74.9%, to
$2.3 million. Revenues from corporate and other decreased
slightly to $510,000 from $584,000 in 2001. For the year ended
December 31, 2002, Brazil accounted for 42.7% of total
revenues, while Mexico, Puerto Rico and Argentina represented
37.7%, 15.8% and 3.2%, respectively, during this period.

Our total reported revenues for the three months
ended December 31, 2002 were approximately
$17.8 million, a decrease of 4.5%, or $0.8 million, as
compared with revenues of $18.7 million in the fourth
quarter of 2001. The decrease was driven primarily by a decline
of $0.9 million, or 25.6%, in advertising and other
revenues, while subscription revenues for the period were
essentially flat versus the three months ended December 31,
2001. For the fiscal 2002 fourth quarter, revenues from
subscriptions to the AOLA country services and the AOL-branded
service in Puerto Rico were $15.3 million and accounted for
85.8% of total revenues. In constant currency terms, for the
quarter ended December 31, 2002, total revenues rose 17.9%
before the negative translation impact of the stronger U.S.
dollar, driven by an increase of 24.7% in subscription revenues
versus the quarter ended December 31, 2001, which was
partially offset by a drop in advertising and other revenue of
12.4%. Information on a constant currency basis excludes the
effect of foreign currency translation on reported results.
Constant currency results are calculated by translating the
current year results at prior year monthly average exchange
rates.

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During the fourth quarter of 2002, Brazil
accounted for $7.0 million in revenue, and 39.0% of total
revenues, flat versus the comparable prior-year period. Revenues
from Mexico were $6.8 million, accounting for 37.9% of
total revenues, but experiencing a decrease of
$0.5 million, or 7.4%, versus our fiscal 2001 fourth
quarter. Puerto Rico accounted for $3.3 million of revenue,
equivalent to 18.5% of total revenues, an increase of
$1.4 million from the comparable prior-year period.
Revenues from Argentina for the fourth quarter of 2002 were
$0.5 million, down $1.7 million from the fourth
quarter of 2001, and accounted for 3.0% of total revenues.
Revenues from corporate and other were $0.3 million which
represented 1.6% of total revenues, and were up slightly from
$0.2 million in the comparable prior-year period. For more
specific discussion related to our segments, please see Segment
Results of Operations below.

Subscription
Revenues.For the periods presented,
our subscription revenues were generated from members paying
fees to subscribe to the AOLA country services and revenues
received from America Online related to subscribers of the
AOL-branded service in Puerto Rico. We began operations in
Brazil in November 1999, in Mexico in July 2000 and in Argentina
in August 2000 and we began receiving revenues related to
subscribers to the AOL-branded service in Puerto Rico in
December 2000. Subscription revenues do not include amounts paid
to us by Banco Itaú on behalf of its customers for
subsidies which it chooses or is required to make. Such receipts
are netted against and recorded as a reduction of marketing
expenses and thus are not accounted for as subscriber revenues.
Amounts paid directly to us by subscribers that exceed the time
subsidized by Banco Itaú are included in subscription
revenues. Beginning in the second quarter of 2003, we expect
fees received from Banco Itaú for subsidies of its members
to largely end since Banco Itaú is no longer responsible
for making such payments under the revised marketing agreement.

As of March 2003, we offered Brazilian
subscribers three methods by which they could pay their
subscription fees: credit cards, debit cards and cash payments
through a mechanism known as boletos bancarios
(boleto). In addition, Banco Itaú customers have the option
of permitting direct debits from their accounts for purposes of
paying subscriber fees. The boleto is a customary form of
payment under which Brazilian banks that we designate act as
conduits for collecting the related payments. Similar forms of
payment are also commonly used in Mexico and Argentina. We send
each member a boleto and the member pays the boleto at a local
bank. These local banks then send the payments to our designated
banks. The boleto is more costly for us than payment through
credit and debit cards and results in a longer collection cycle.
Approximately 45% of our subscribers in Brazil (other than those
to the Banco Itaú co-branded service) had selected this
method of payment as of December 31, 2002. Although we have not
experienced any significant difficulties collecting subscription
fees from members using credit and debit cards, collection rates
from members opting for the boleto payment mechanism have been
lower and less timely.

As of March 2003, subscribers in Mexico and
Argentina could choose among two methods by which they could pay
their subscription fees: credit cards and cash payments. As in
Brazil, cash payment mechanisms in these countries depend on
banks and other third party collection locations that forward
funds to banks designated for that purpose by the company. As of
December 31, 2002, approximately 41% of our members in
Mexico and 50% of our members in Argentina had selected the cash
payment option, and the collections experience in these
countries has been similar to that in Brazil. In Mexico, we are
also emphasizing prepaid subscription plans whereby subscribers
pay in advance for service periods ranging up to one year.
Initial results indicate these efforts have resulted in a
reduction of the overall percentage of members who have selected
the cash method as their payment option. In Mexico, prepaid
plans are growing in importance and currently account for about
14% of current AOL Mexico members; however, prepaid plans are
not currently actively marketed in Brazil, Argentina and Puerto
Rico.

In Brazil, Mexico and Argentina, we are taking
steps to improve the validation of registration data provided by
cash payment subscribers through the development of real-time
validation mechanisms or by requiring these subscribers to call
our customer service centers to finalize their registration. The
vast majority of Puerto Rican members have selected credit cards
or direct debit to their bank accounts as their payment options.

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For subscribers that have elected to pay their
subscription fees with credit cards, we begin to recognize
subscription revenues when the fees become due. For subscribers
who pay through means other than credit cards, we begin to
recognize subscription revenues when we receive payment. As of
March 2003, approximately 40% of our total subscriber base
(excluding subscribers to the Banco Itaú co-branded
service) has selected non-credit card and non-direct debit
payment options. We are taking steps to encourage conversion of
non-credit card and non-direct debit payment method subscribers
to credit and debit payment options. For instance, we have
implemented programs offering discounts to subscribers to our
AOLA country services to encourage them to choose the credit
card payment option.

For the fiscal year ended December 31, 2002,
subscription revenues reached $63.0 million and 87.4% of
total revenue, an increase of 26.2% as compared to the year
ended December 31, 2001, for which subscription revenues
were $49.9 million and represented 75.1% of total revenues.
Reported year-over-year results were driven by increases in the
number of paid members to our AOLA country services and the
AOL-branded service in Puerto Rico. Excluding the effects of
currency devaluation, subscription revenues increased 45.7% as
compared to the year ended December 31, 2001.

Going forward, we expect that subscriber revenue
growth will depend primarily on the success of our revised
marketing agreement with Banco Itaú as a channel for
acquiring high quality members who remain with us for an
extended period of time and make timely payments to us. We also
expect other marketing agreements that we may enter into,
including the agreement with McDonalds in Brazil, will be
an important factor in the evolution of future subscription
revenue performance. Subscription revenue will continue to be
negatively impacted, especially with regard to year-over-year
comparisons, by the devaluation of the Brazilian real and, more
recently, by the devaluation of the Mexican peso. The average
exchange rate for the Brazilian real was R$2.92 per U.S. dollar
during 2002, as compared with an exchange rate of R$3.63 per
dollar at December 31, 2002. The Mexican peso has devalued
by an additional 5.5% from December 1, 2002 through
March 25, 2003. Growth in subscription revenues may also be
negatively impacted by the slowdown in sales of personal
computers taking place throughout most of Latin America as a
result of recent economic volatility, which may hamper our
ability to attract new subscribers to our AOLA country services.

For the year ended December 31, 2001,
subscription revenues related to our AOLA country services were
$49.9 million, an increase of 323.3% as compared to
$11.8 million for the twelve-month period ended
December 31, 2000. During the fiscal 2001 year,
subscription revenue accounted for 75.1% of total revenues, up
from 62.0% of total revenues in the twelve months ended
December 31, 2000. This increase in subscription revenues
was due to the increased billings for the AOLA country services
in Brazil, Mexico and Argentina, and revenue related to the
AOL-branded service in Puerto Rico.

For the twelve months ended December 31,
2000, subscription revenues were $11.8 million, with
$9.7 million, or 82.7% of our total subscription revenues,
being generated from subscribers to our AOLA country services in
Brazil (which was launched in November 1999), Mexico (which was
launched in July 2000) and Argentina (which was launched in
August 2000). We generated the remainder of our revenues from
subscribers to our CompuServe Classic service. There were
approximately 18,000 CompuServe subscribers when we acquired the
subscription base from America Online on December 15, 1998.
At December 31, 2000 there were approximately 2,800
Compuserve Classic subscribers. The decline in our CompuServe
Classic subscription base occurred because we did not market the
service to retain or increase members. We terminated the
Compuserve Classic service in March 2002.

Advertising and Other
Revenues.Advertising and other
revenues are derived principally from:



| |   |                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | advertising arrangements under which we receive
    fees based on the number of advertisements displayed on our
    interactive services;                                                                               
|
| |  | advertising sponsorship or co-sponsorship
    arrangements that allow advertisers to sponsor an area on our
    interactive services in exchange for a fixed payment either in
    cash or, in one instance, equity; and

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | revenue sharing agreements with
    telecommunications companies. Because local telephone service in
    Latin America is often metered, the utilization of our AOLA
    country services by our members results in incremental revenues
    to local telecommunications companies. To encourage incremental
    traffic on their local networks by our members, local providers
    of network access may enter into agreements compensating us for
    routing our traffic on their networks.

For the year ended December 31, 2002,
revenue from advertising and other declined by approximately
$7.4 million, or 44.9%, to $9.1 million, and accounted
for 12.6% of total revenues, down from $16.5 million and
24.9% of total revenues in the year ended December 31,
2001. The decrease in advertising and other revenues was driven
primarily by the continued weak advertising market in Latin
America, with all our countries except Puerto Rico recording
declines. During the year ended December 31, 2002, Brazil
accounted for 60.7% of total revenue from advertising and other
activities and Mexico accounted for 24.8%, while Puerto Rico and
Argentina accounted for most of the remainder of the balance.

During the fourth quarter of 2002, revenues from
advertising and other were approximately $2.5 million, down
$0.9 million from the fourth quarter of 2001. Although this
represented an increase on a sequential basis versus the third
quarter of 2002, we expect advertising and other revenue to
decrease for the full year during fiscal 2003, as compared to
results in fiscal 2002, as advertisers allocate their limited
resources to traditional media, rather than online advertising.
We expect our first quarter 2003 advertising and other revenue
to register a significant decline versus the first quarter of
2002. We expect future advertising and other revenue to only
recover along with overall market conditions. We expect to
continue deriving the substantial majority of our revenues from
subscriptions to our AOLA country services, rather than
advertising and other revenues.

For the year ended December 31, 2001,
advertising and other revenues increased to $16.5 million,
up from $7.2 million in the twelve months ended
December 31, 2000, and represented 25% of total revenues.
Advertising and other revenues for the year ended
December 31, 2001 increased 128%, or $9.3 million from
the twelve months ended December 31, 2000, driven primarily
by full-year contributions from Mexico and Argentina. During the
year ended 2001, Brazil accounted for 53.7% of revenue from
advertising and other revenues, with Mexico accounting for
33.6%, Argentina for 10.7% and Puerto Rico, corporate and other
accounting for the remainder of the balance. During the
twelve-month period ended December 31, 2000, Brazil
accounted for 75.6% of revenue from advertising and other.
Contributions from our country services in Mexico and Argentina
were small as a result of their newly-launched status.

Despite the year-over-year increase in 2001
versus the twelve-month period ended 2000, advertising and other
revenues began to experience a decline in the fourth quarter of
calendar year 2001, as performance was impacted by the
world-wide slowdown in advertising expenditures brought about by
slowed global economic growth and the economic crisis in
Argentina. The cutback in advertising expenditures by major
advertisers accelerated in the wake of the September 2001
terrorist attacks in the United States.

During the year ended December 31, 2002,
advertising and other revenues from related parties accounted
for approximately $3.2 million, or 35.2%, of the
$9.1 million recorded for the period, up from
$2.6 million and 16% in the prior year. This amount
included $2.3 million related to our participation in
global transactions arranged by America Online with third party
advertisers. Banco Itaú accounted for the remaining balance
of fiscal 2002 related party advertising and other revenues. For
the year ended December 31, 2001, approximately
$1.5 million of the $2.6 million was derived from
transactions with Banco Itaú, with the remainder primarily
from properties belonging to AOLTW and DirecTV Latin America,
which is associated with the Cisneros Group. For the twelve
months ended December 31, 2000, advertising and commerce
revenues from related parties accounted for $1.2 million of
the $7.2 million reported, or 17% of the total. Banco
Itaú accounted for the entire amount of related party
advertising and commerce revenue during this period.

As of December 31, 2002, deferred
advertising and other revenues amounted to $1.3 million,
down from $2.9 million at December 31, 2001. Deferred
revenues from advertising and other consists of payments
received in advance of our delivery of the related service and
are recognized as income as the

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services are delivered. The decline in the
balance of deferred advertising and other revenue year over year
is primarily due to amortization of a long-term contract with
Hollywood.com. This contract will have been fully amortized by
October 2003.


Costs and Expenses.The following table presents the components of costs and
expenses for the years ended December 31, 2002 and
December 31, 2001, the twelve-month period ended
December 31, 2000 and the three month periods ended
December 31, 2002 and 2001.

(Dollars in thousands)

|                                                 |                            |                          |       |                     |        |        |       |              |        |              |       |             |       |              |       |         |         |   |       |         |         |  |     |       |       |    |       |         |         |  |       |       |       |  
|------------------------------------------------ | -------------------------- | ------------------------ | ----- | ------------------- | ------ | ------ | ----- | ------------ | ------ | ------------ | ----- | ----------- | ----- | ------------ | ----- | ------- | ------- | - | ----- | ------- | ------- |  | --- | ----- | ----- | -- | ----- | ------- | ------- |  | ----- | ----- | ----- | -
|                                                 |                            |                          |       |                    
|                                                 |                            | Three Months Ended       |       | Twelve Months Ended
|                                                 |                            |                          |       |                    
|                                                 |                            | December 31,             |       | December 31,        |        | %      |       | December 31, |        | December 31, |       | %           |       | December 31, |       | %      
|                                                 |                            | 2002                     |       | 2001                |        | Change |       | 2002         |        | 2001         |       | Change      |       | 2000         |       | Change 
|                                                 |                            |                          |       |                     |        |        |       |              |        |              |       |             |       |              |       |        
|                                                 |                            |                          |       |                     |        |        |       |              |        |              |       | (unaudited) |       |             
|                                                 |                            | (unaudited)              |       |                     |        |        |       |              |        |              |       |             |       |             
|Costs and expenses:                              |                            |                          |       |                     |        |        |       |              |        |              |       |             |       |              |       |         |         |   |       |         |         |  |     |       |       |    |       |         |         |  |       |      
|                                                 | Cost of revenues           |                          | $     | 18,993              |        |        | $     | 32,974       |        |              |       | (42.4       | )%    |              | $     | 98,695  |         |   | $     | 128,896 |         |  |     | (23.4 | )%    |    | $     | 59,526  |         |  |       | 116.5 | %    
|                                                 | Sales and marketing        |                          |       | 21,139              |        |        |       | 39,795       |        |              |       | (46.9       | )     |              |       | 97,170  |         |   |       | 191,024 |         |  |     | (49.1 | )     |    |       | 201,977 |         |  |       | 5.2   | %    
|                                                 | General and administrative |                          |       | 9,109               |        |        |       | 12,048       |        |              |       | (24.4       | )     |              |       | 32,871  |         |   |       | 41,591  |         |  |     | (21.0 | )     |    |       | 28,825  |         |  |       | 44.3  | %    
|                                                 |                            |                          |       |                     |        |        |       |              |        |              |       |             |       |              |       |         |         |   |       |         |         |  |     |       |       |    |       |         |         |  |       |      
|                                                 |                            | Total costs and expenses |       | $                   | 49,241 |        |       | $            | 84,817 |              |       |             | (41.9 | )%           |       | $       | 228,736 |   |       | $       | 361,511 |  |     |       | (36.7 | )% |       | $       | 290,328 |  |       |       | 24.52 | %
|                                                 |                            |                          |       |                     |        |        |       |              |        |              |       |             |       |              |       |         |         |   |       |         |         |  |     |       |       |    |       |         |         |  |       |      
|As a percentage of total costs and
    expenses: |                            |                          |       |                     |        |        |       |              |        |              |       |             |       |              |       |         |         |   |       |         |         |  |     |       |       |    |       |         |         |  |       |      
|                                                 | Cost of revenues           |                          |       | 38.6                | %      |        |       | 38.9         | %      |              |       |             |       |              |       | 43.1    | %       |   |       | 35.7    | %       |  |     |       |       |    |       | 20.5    | %       |  |       |       |      
|                                                 | Sales and marketing        |                          |       | 42.9                | %      |        |       | 46.9         | %      |              |       |             |       |              |       | 42.5    | %       |   |       | 52.8    | %       |  |     |       |       |    |       | 69.6    | %       |  |       |       |      
|                                                 | General and administrative |                          |       | 18.5                | %      |        |       | 14.2         | %      |              |       |             |       |              |       | 14.4    | %       |   |       | 11.5    | %       |  |     |       |       |    |       | 9.9     | %       |  |       |       |      
|                                                 |                            |                          |       |                     |        |        |       |              |        |              |       |             |       |              |       |         |         |   |       |         |         |  |     |       |       |    |       |         |         |  |       |      
|                                                 | Total costs and expenses   |                          |       | 100.0               | %      |        |       | 100.0        | %      |              |       |             |       |              |       | 100.0   | %       |   |       | 100.0   | %       |  |     |       |       |    |       | 100.0   | %       |  |       |       |      
|                                                 |                            |                          |       |                     |        |        |       |              |        |              |       |             |       |              |       |         |         |   |       |         |         |  |     |       |       |    |       |         |         |  |       |      
|Costs and expenses by operating
    segment:     |                            |                          |       |                     |        |        |       |              |        |              |       |             |       |              |       |         |         |   |       |         |         |  |     |       |       |    |       |         |         |  |       |      
|                                                 |  Brazil                   |                          | $     | 26,095              |        |        | $     | 42,206       |        |              |       | (38.2       | )%    |              | $     | 126,201 |         |   | $     | 174,454 |         |  |     | (27.7 | )%    |    | $     | 173,489 |         |  |       | 0.6   | %    
|                                                 |  Mexico                   |                          |       | 12,907              |        |        |       | 25,202       |        |              |       | (48.8       | )     |              |       | 64,432  |         |   |       | 96,686  |         |  |     | (33.4 | )     |    |       | 53,596  |         |  |       | 80.4  |      
|                                                 |  Argentina                |                          |       | 1,077               |        |        |       | 7,285        |        |              |       | (85.2       | )     |              |       | 5,442   |         |   |       | 48,818  |         |  |     | (88.9 | )     |    |       | 35,650  |         |  |       | 36.9  |      
|                                                 |  Puerto Rico              |                          |       | 2,725               |        |        |       | 2,646        |        |              |       | 3.0         |       |              |       | 10,419  |         |   |       | 12,300  |         |  |     | (15.3 | )     |    |       | 7,007   |         |  |       | 75.5  |      
|                                                 |  Corporate and other      |                          |       | 6,437               |        |        |       | 7,478        |        |              |       | (13.9       | )     |              |       | 22,242  |         |   |       | 29,253  |         |  |     | (24.0 | )     |    |       | 20,586  |         |  |       | 42.1  |      
|                                                 |                            |                          |       |                     |        |        |       |              |        |              |       |             |       |              |       |         |         |   |       |         |         |  |     |       |       |    |       |         |         |  |       |      
|                                                 |                            |                          | $     | 49,241              |        |        | $     | 84,817       |        |              |       | (41.9       | )%    |              | $     | 228,736 |         |   | $     | 361,511 |         |  |     | (36.7 | )%    |    | $     | 290,328 |         |  |       | 24.5  | %    
|                                                 |                            |                          |       |                     |        |        |       |              |        |              |       |             |       |              |       |         |         |   |       |         |         |  |     |       |       |    |       |         |         |  |       |      
|As a percentage of total costs and
    expenses: |                            |                          |       |                     |        |        |       |              |        |              |       |             |       |              |       |         |         |   |       |         |         |  |     |       |       |    |       |         |         |  |       |      
|                                                 |  Brazil                   |                          |       | 53.0                | %      |        |       | 49.8         | %      |              |       |             |       |              |       | 55.2    | %       |   |       | 48.3    | %       |  |     |       |       |    |       | 59.8    | %       |  |       |       |      
|                                                 |  Mexico                   |                          |       | 26.2                | %      |        |       | 29.7         | %      |              |       |             |       |              |       | 28.2    | %       |   |       | 26.7    | %       |  |     |       |       |    |       | 18.5    | %       |  |       |       |      
|                                                 |  Argentina                |                          |       | 2.2                 | %      |        |       | 8.6          | %      |              |       |             |       |              |       | 2.4     | %       |   |       | 13.5    | %       |  |     |       |       |    |       | 12.3    | %       |  |       |       |      
|                                                 |  Puerto Rico              |                          |       | 5.5                 | %      |        |       | 3.1          | %      |              |       |             |       |              |       | 4.6     | %       |   |       | 3.4     | %       |  |     |       |       |    |       | 2.4     | %       |  |       |       |      
|                                                 |  Corporate and other      |                          |       | 13.1                | %      |        |       | 8.8          | %      |              |       |             |       |              |       | 9.6     | %       |   |       | 8.1     | %       |  |     |       |       |    |       | 7.0     | %       |  |       |       |      
|                                                 |                            |                          |       |                     |        |        |       |              |        |              |       |             |       |              |       |         |         |   |       |         |         |  |     |       |       |    |       |         |         |  |       |      
|                                                 |                            |                          |       | 100.0               | %      |        |       | 100.0        | %      |              |       |             |       |              |       | 100.0   | %       |   |       | 100.0   | %       |  |     |       |       |    |       | 100.0   | %       |  |       |       |      
|                                                 |                            |                          |       |                     |        |        |       |              |        |              |       |             |       |              |       |         |         |   |       |         |         |  |     |       |       |    |       |         |         |  |       |      
|Depreciation and amortization:                   |                            |                          |       |                     |        |        |       |              |        |              |       |             |       |              |       |         |         |   |       |         |         |  |     |       |       |    |       |         |         |  |       |      
|                                                 |  Brazil                   |                          | $     | 523                 |        |        | $     | 441          |        |              |       | 18.5        | %     |              | $     | 2,580   |         |   | $     | 1,598   |         |  |     | 61.5  | %     |    | $     | 720     |         |  |       | 121.9 | %    
|                                                 |  Mexico                   |                          |       | 285                 |        |        |       | 311          |        |              |       | (8.4        | )     |              |       | 1,222   |         |   |       | 1,090   |         |  |     | 12.1  |       |    |       | 1,039   |         |  |       | 4.9   | %    
|                                                 |  Argentina                |                          |       | 79                  |        |        |       | 34           |        |              |       | 132.8       |       |              |       | 352     |         |   |       | 451     |         |  |     | (22.0 | )     |    |       | 373     |         |  |       | 20.9  | %    
|                                                 |  Puerto Rico              |                          |       | 28                  |        |        |       | 71           |        |              |       | (60.6       | )     |              |       | 80      |         |   |       | 124     |         |  |     | (35.5 | )     |    |       |        |         |  |       | N/A   |      
|                                                 |  Corporate and other      |                          |       | 203                 |        |        |       | 460          |        |              |       | (55.8       | )     |              |       | 794     |         |   |       | 1,657   |         |  |     | (52.1 | )     |    |       | 172     |         |  |       | 863.4 | %    
|                                                 |                            |                          |       |                     |        |        |       |              |        |              |       |             |       |              |       |         |         |   |       |         |         |  |     |       |       |    |       |         |         |  |       |      
|                                                 |                            | $                        | 1,118 |                     |        | $      | 1,317 |              |        |              | (15.1 | )%          |       | $            | 5,028 |         |         | $ | 4,920 |         |         |  | 2.2 | %     |       |    | 2,304 |         |         |  | 113.5 | %    
|                                                 |                            |                          |       |                     |        |        |       |              |        |              |       |             |       |              |       |         |         |   |       |         |         |  |     |       |       |    |       |         |         |  |       |      

Total costs and expenses amounted to
approximately $228.7 million in the year ended
December 31, 2002, a reduction of approximately
$132.8 million, or 36.7%, from 2001. All cost categories
experienced significant reductions, with sales and marketing
expense accounting for 49.1%, or $93.9 million, of the
improvement. The reduction in sales and marketing expense was
driven by the change in our strategy to focus our efforts
towards the acquisition of higher quality members and lower
spending on brand advertising. Our strategy to focus on higher
quality members resulted in significantly less emphasis on our

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traditional vehicle for the acquisition of new
members  the mass distribution of CDs containing our
software  in favor of OEM channels and staffed kiosks
in high traffic retail locations and malls. Costs of revenue
experienced a decrease of $30.2 million, or 23.4%, to
$98.7 million, while general and administrative expenses
decreased by $8.7 million, or 21.0%, during the year ended
December 31, 2002. Total reported costs and expenses for
the year ended December 31, 2002 were reduced by
approximately $25.0 million, or 11.0%, as a result of
currency devaluations in Latin American countries, primarily
Brazil and Argentina.


For the year ended December 31, 2001, total
costs and expenses were $361.5 million, which represented an
increase of approximately $71.3 million, or 24.5% versus
the twelve-month period ended December 31, 2000. The
increase was driven by higher membership levels and the
resulting increase in network and member services costs, which
are a function of membership and new registrations. General and
administrative expense increased $12.8 million, or 44%,
over the comparable period in 2000, reflecting the full year of
country operations in Mexico, Argentina and Puerto Rico. Sales
and marketing expense, however, declined by $11 million
during fiscal 2001, to $191.0 million, following the
initial launch-related expenditure peak in 2000.

Cost of Revenues.Cost of revenues includes:



| |   |                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------
| |  | network-related costs consisting primarily of
    fees paid to third parties to carry our data over their
    telecommunications networks;
|
| |  | personnel and related costs for customer support
    and in-house product and content development;                                        
|
| |  | fees we pay to America Online for use of their
    servers that run our interactive services (i.e. hosting
    services);                 
|
| |  | fees we pay to America Online for technical
    support and training;                                                                     
|
| |  | fees we pay to America Online for product
    development;                                                                                
|
| |  | fees paid to third-party content providers; and                                                                                           
|
| |  | collection costs and certain miscellaneous taxes.                                                                                         

For the year ended December 31, 2002, cost
of revenues decreased by approximately 23.4%, or
$30.2 million, to $98.7 million, from
$128.9 million in our 2001 fiscal year. The decrease was
driven by reductions in network and telecommunications costs and
call center costs, reflecting primarily the impact of
initiatives to focus on higher quality members and restrict
access to our network and call center support services to
members who are delinquent in their payments of fees to us. Cost
of revenues during fiscal 2002 include one-time costs to size
our network to service higher quality members in the amount of
$5.1 million. Cost of revenues accounted for 43.1% of our
total cost structure during 2002, up from 35.7% in 2001.
Currency devaluation reduced reported cost of revenues by
approximately 13.0%, or $14.8 million, during the 2002 fiscal
year.

For the three months ended December 31,
2002, cost of revenues was $19.0 million, a reduction of
42.4% from the three months ended December 31, 2001. The
decrease reflected the continuation of the underlying drivers
experienced throughout most of fiscal 2002, namely lower network
and telecommunications and call center costs. Currency
devaluation reduced reported cost of revenues by
$4.9 million during the quarter ended December 31,
2002.

Going forward, we expect cost of revenues to
decrease in absolute terms from levels experienced in fiscal
2002, driven by the impact of currency devaluation on reported
costs, the consolidation of member services for Spanish-language
countries in Argentina and negotiated reductions in network
costs with local telecommunications companies. We expect that
the rate of improvement in year-over-year comparisons will begin
to decrease after the first half of fiscal 2003, once the impact
of currency devaluations and of recent cost reduction
initiatives are incorporated into the base periods.

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For the twelve months ended December 31,
2001, cost of revenues increased to approximately
$128.9 million, up $69.4 million, or 116.5%, from
$59.5 million in the twelve-month period ended
December 31, 2000. This increase resulted primarily from
higher network expenses and costs related to our call centers,
driven by the increase in our membership base and the first full
year of service of our AOLA country services. Cost of revenue
accounted for 35.7% of our total cost structure during fiscal
2001, up from 20.5% from the comparable 2000 period. This
relative increase as a proportion of total costs and expenses
occurred as a result of both the increase in absolute spending
in cost of revenues and the reduction in sales and marketing
expense.

Cost of revenues paid to related parties during
the years ended December 31, 2002 and December 31,
2001 and the twelve-month period ended December 31, 2000
were approximately $21.6 million, $24.0 million and
$11.2 million, respectively, and were primarily paid to
America Online for hosting, systems maintenance, product
development, member services and other support services for our
country operations and the AOL-branded service in Puerto Rico.
The expenses paid to America Online are largely variable in
nature and are a function of our membership levels and the time
spent on our AOLA country services and the AOL-branded service
in Puerto Rico by our members. As of December 31, 2002,
America Online billed us approximately $3.6 million over
and above amounts we have recorded in our statements of
operations. The difference relates to a portion of items under
dispute, primarily for support services provided by America
Online. We are currently negotiating with America Online
regarding the total amount in dispute and at this point do not
expect to pay this approximately $3.6 million amount. As a
result, this amount is not reflected in our consolidated
statement of operations. In the event we are unable to negotiate
a favorable resolution of this dispute, we may recognize an
incremental charge to our future cost of revenues. We are also
currently negotiating the method for calculating amounts due for
2003 under our online services agreement.

Sales and Marketing.Sales and marketing expenses include our costs to acquire and
retain our members, the operating expenses for our sales and
marketing efforts and other general marketing costs. The costs
to acquire and retain our members include direct marketing costs
such as the costs of kiosks and related support and the costs of
CDs and their distribution as well as the costs of brand
advertising on television and in newspapers, magazines and other
media. Also included in sales and marketing expense is
amortization of the value of the shares of our class A common
stock issued to Banco Itaú in consideration for its
entering into the strategic marketing alliance with us (see
Item 1  Business  Strategic Alliance
with Banco Itaú, as well as Note 4 to our consolidated
financial statements).

For the twelve months ended December 31,
2002, sales and marketing expenses totaled approximately
$97.2 million, a decrease of approximately 49.1%, or
$93.8 million, versus 2001. The reduction in sales and
marketing expenditures during fiscal 2002 was achieved by the
implementation of initiatives designed to target members who
have higher probabilities of becoming and remaining paying
members. Specifically, this has resulted in a significant
reduction in the mass mailing of non-solicited CDs containing
our software in favor of an increased focus on acquiring members
through direct customer interaction channels and original
equipment manufacturers (OEMs). Currency devaluation also
accounted for part of the variation in sales and marketing
expense during fiscal 2002, reducing reported expense by
approximately $6.8 million.

For the fourth quarter of 2002, sales and
marketing expenses were $21.1 million and represented 42.9%
of our total costs and expenses, down 46.9%, or
$18.7 million, from $39.8 million and 46.9% of total
costs and expenses in the quarter ended December 31, 2001.
During the three months ended December 31, 2002, currency
devaluations reduced reported sales and marketing expenses by
$2.6 million versus the comparable prior-year period.

The decrease in sales and marketing expenses in
the quarter ended December 31, 2002 was primarily driven by
lower spending in direct marketing ($12.1 million) and
brand marketing ($7.8 million), partially offset by
miscellaneous increases in related general and administrative
sales and marketing expense. These declines resulted primarily
from the recent initiatives also driving the year-over-year
variances. We expect to reduce our brand marketing efforts from
current levels over the near term to reduce costs. We evaluate

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the productivity and marginal contribution of our
kiosks and expect to reduce the number of points of sales or
relocate them to other more productive locations to reduce our
direct marketing costs during 2003.


Most of the improvements in sales and marketing
expense represented one-time reductions to our cost structure.
Although we expect that improvements will continue to be
observed in declining degrees over the first half of 2003, we
expect sales and marketing expense to remain near current levels
in absolute terms over the near future. It is anticipated that
by the end of the first twelve months of the marketing agreement
that we entered into with McDonalds in Brazil,
McDonalds will establish the McInternet program in at
least 550 restaurants throughout Brazil. As part of the
agreement, AOL Brazil will pay McDonalds an initial fee
and annual fees in the aggregate amount of up to $7,000,000 over
the term of the agreement, as well as a fee for each new member
who becomes a paying member of the AOLA country service in
Brazil through this promotion.

For the twelve months ended December 31,
2001, sales and marketing expenses totaled approximately
$191.0 million, a decrease of approximately
$11.0 million, or 5.4%, from the twelve-month period ended
December 31, 2000. Sales and marketing expenditures during
fiscal 2001 included the first full year of amortization expense
related to our June 2000 strategic marketing agreement with
Banco Itaú, which amounted to $41.8 million, compared
with approximately six and one-half months of amortization
expense in the twelve-month period ended December 31, 2000.
This amortization expense is related to the equity that was
given to Banco Itaú in consideration for entering into the
strategic marketing agreement. Excluding the impact of the Banco
Itaú amortization expense, expenditures related to sales
and marketing decreased by $31 million in 2001, or 17%
versus the comparable prior year period, as a result of the
absence of launch-related expenditures in 2001, lower per unit
CD and distribution costs and the absence of one-time costs
associated with the sponsorship of the Rock in Rio music
festival in 2000. During the year ended December 31, 2001,
sales and marketing expenses continued as our single largest
cost category. Although down from 69.6% in the comparable prior
year period, sales and marketing expenses represented 52.8% of
total costs and expenses during fiscal 2001.

In addition to the Banco Itaú amortization
expense, amounts paid or accrued to related parties for sales
and marketing activities for the twelve-month periods ended
December 31, 2001 and December 31, 2000 were
$0.9 million and $0.2 million, respectively, primarily
related to estimated bounties for new customers to the
AOL-branded Puerto Rico service acquired through channels
controlled by America Online and for advertising on media
properties controlled by AOLTW. The year ended December 31,
2002 includes a credit of $567,000 related to a revised estimate
of bounties for new subscribers to subscribers to the
AOL-branded service in Puerto Rico obtained through channels
controlled by America Online.

In connection with our strategic marketing
agreement with Banco Itaú of Brazil, we issued an aggregate
of 31,700,000 shares of class A common stock, valued at
$253.6 million based on the initial public offering price
of $8.00 per share to Banco Itaú on August 11, 2000.
Since there are potential, specific payments (from Banco
Itaú to us) related to performance in the first five years
of the agreement with Banco Itaú, $164.8 million of
the cost (value of the shares issued) is being expensed on a
straight-line basis over that period. The remaining balance of
the cost, $88.8 million, is being expensed on a
straight-line basis over the ten-year term of the agreement. The
revision of the marketing agreement did not change the
accounting treatment of the amortization.

General and
Administrative.For the year ended
December 31, 2002, general and administrative expenses were
approximately $32.9 million, a decrease of
$8.7 million, or 21.0%, from $41.6 million in the
prior fiscal year ended December 31, 2001. This reduction
in general and administrative expense reflects the benefits from
our September 2001 workforce reduction, the impact of currency
devaluation in Brazil and Argentina and reduced bad debt expense
related to uncollectible accounts receivable. Reported general
and administrative expense for fiscal 2002 was lower by
$3.2 million as a result of currency devaluations
experienced during the year.

In the quarter ended December 31, 2002,
general and administrative expenses were negatively impacted by
one-time costs of $1.5 million, which included an
additional write off of future lease commitments in the amount
of approximately $0.9 million related to the Fort
Lauderdale headquarters

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group for space that was abandoned after our
September 2001 restructuring, and additional severance expense
of $0.6 million. General and administrative expense was
lower by $1.2 million due to currency devaluations. In
March 2003, we undertook an additional work force reduction
designed to further reduce our costs. We expect to incur a
charge of approximately $1.2 million for costs related to
this reduction. For calendar 2003, we expect general and
administrative expenses to be lower than 2002.


For the year ended December 31, 2001,
general and administrative expenses of approximately
$41.6 million represented an increase of approximately
44.3%, as compared with $28.8 million in the twelve-month
period ended December 31, 2000. The increase versus the
prior year primarily reflected the first full year of operations
in our four core countries. General and administrative expenses
during fiscal year 2001 were negatively impacted by a
$4.0 million charge in September 2001 related to severance
expenses associated with a reduction of 7% of our global work
force. In addition, we incurred a write off of approximately
$1.5 million associated with leasehold improvements and
future lease commitments related to the Fort Lauderdale
headquarters group for space that was abandoned after our
September 2001 workforce restructuring.

Both America Online and the Cisneros Group
provide us with general and administrative services. For the
year ended December 31, 2002, we incurred expenses of
$1.6 million and $219,000 to America Online and the
Cisneros Group, respectively. For the year ended
December 31, 2001, we incurred fees of approximately
$2.0 million and $300,000 for support services provided by
America Online and for services provided by the Cisneros Group,
respectively.

Interest Expense.Interest expense consists almost
entirely of interest on our senior convertible notes
outstanding. For the year ended December 31, 2002, interest
expense was approximately $5.3 million, as compared to $22,000
in the year ended December 31, 2001. The agreement to sell
the senior convertible to AOLTW was entered into in March 2002,
and the purchase of the contractual limit of $160.0 million
under the agreement was completed by AOLTW on December 30,
2002. For fiscal 2003, we expect that our interest expense will
increase significantly, driven by a full year interest expense
of $17.8 million on the entire outstanding balance of $160.0
million of AOLTW notes. Since we expect to pay the interest on
the AOLTW notes through the issuance of additional stock, this
interest is not expected to have a cash impact on our finances.

Interest and other income,
net.Interest and other income, net
consists primarily of interest income, foreign currency gains
and losses and realized gains and losses on investments. For the
year ended December 31, 2002, interest and other income,
net was $139,000, down from $4.8 million in the year ended
December 31, 2001. This decrease of $4.7 million was due to
significantly lower interest income, as we reduced our cash
balances to fund the business, and instead began to incur
interest expense related to our issuance of senior convertible
notes to AOLTW in connection with our March 2002 financing. We
also incurred an impairment loss of our investment in
Hollywood.com of approximately $0.8 million during fiscal 2002.

For the year ended December 31, 2001,
interest and other income, net was $4.8 million, and was
comprised primarily of interest income derived from the
investment of proceeds raised during previous financing rounds.
For the twelve month period ended December 31, 2000,
interest and other income, net equaled approximately $1.6
million, and consisted of approximately $5.8 million of interest
income partially offset by the writedown of $3.7 million in our
investment of Hollywood.com and foreign currency losses of
$740,000.

Liquidity and Capital Resources

From inception through December 31, 2002,
our operations were financed through the issuance of senior
convertible debt and through capital raised in several rounds of
financing, including our initial public offering on
August 8, 2000. Funds raised through December 31, 2002
have totaled $713.1 million, net of issuance-related
expenses. Prior to the initial public offering, contributions by
joint venture partners totaled $200.1 million,
corresponding to $150.1 million by the Cisneros Group and
$50.0 million by America Online. Subsequently, our initial
public offering in August 2000 generated total proceeds of
$203.1 million,

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including exercise of the over-allotment option
by the underwriters, net of issuance expenses. An additional
round of financing took place in March 2001, under which we
raised $150.0 million through the sale of stock to America
Online, the Cisneros Group and Banco Itaú. Our most recent
round of financing took place in March 2002 and consisted of the
issuance of $160.0 million in senior convertible notes
maturing in March 2007 to AOLTW. We completed our fiscal year
2002 with $75.5 million in cash on hand.


(Dollars in thousands)

|                                               |                                                                  |                                                          |        |              |        |        |        |              |         |        |       |        |        |   |        |          |        |  |       |       |       |  
|---------------------------------------------- | ---------------------------------------------------------------- | -------------------------------------------------------- | ------ | ------------ | ------ | ------ | ------ | ------------ | ------- | ------ | ----- | ------ | ------ | - | ------ | -------- | ------ |  | ----- | ----- | ----- | -
|                                               |                                                                  |                                                         
|                                               |                                                                  | Twelve Months Ended                                     
|                                               |                                                                  |                                                         
|                                               |                                                                  | December 31,                                             |        | December 31, |        | %      |        | December 31, |         | %     
|                                               |                                                                  | 2002                                                     |        | 2001         |        | Change |        | 2000         |         | Change
|                                               |                                                                  |                                                          |        |              |        |        |        |              |         |       
|                                               |                                                                  |                                                          |        |              |        |        |        | (unaudited)  |         |       
|Condensed Cash Flow Statement:                 |                                                                  |                                                          |        |              |        |        |        |              |         |        |       |        |        |   |        |          |        |  |       |      
|Cash and cash equivalents, beginning of period |                                                                  | $                                                        | 46,676 |              |        | $      | 63,509 |              |         |        | (26.5 | )%     |        | $ | 20,213 |          |        |  | 130.9 | %    
|                                               |                                                                  |                                                          |        |              |        |        |        |              |         |        |       |        |        |   |        |          |        |  |       |      
|Cash flow (used) provided by:                  |                                                                  |                                                          |        |              |        |        |        |              |         |        |       |        |        |   |        |          |        |  |       |      
|                                               | Operating activities                                             |                                                          |        | (128,271     | )      |        | $      | (227,892     | )       |        |       | (43.7  | )      |   | $      | (232,603 | )      |  |       | (44.9 | )    
|                                               | Investing activities                                             |                                                          |        | (2,026       | )      |        |        | 63,165       |         |        |       | (103.2 | )      |   |        | (81,872  | )      |  |       | (97.5 | )    
|                                               | Financing activities                                             |                                                          |        | 160,040      |        |        |        | 148,853      |         |        |       | 7.5    |        |   |        | 358,990  |        |  |       | (55.4 | )    
|                                               | Effect of exchange rate changes on cash and cash
    equivalents |                                                          |        | (918         | )      |        |        | (959         | )       |        |       | (4.3   | )      |   |        | (1,219   | )      |  |       | (24.7 | )    
|                                               |                                                                  |                                                          |        |              |        |        |        |              |         |        |       |        |        |   |        |          |        |  |       |      
|                                               |                                                                  | Net increase (decrease) in cash and cash
    equivalents |        |              | 28,825 |        |        |              | (16,833 | )      |       |        | (271.2 | ) |        |          | 43,296 |  |       |       | (33.4 | )
|                                               |                                                                  |                                                          |        |              |        |        |        |              |         |        |       |        |        |   |        |          |        |  |       |      
|Cash and cash equivalents, end of period       |                                                                  | $                                                        | 75,501 |              |        | $      | 46,676 |              |         |        | 61.8  | %      |        | $ | 63,509 |          |        |  | 18.9  |      
|                                               |                                                                  |                                                          |        |              |        |        |        |              |         |        |       |        |        |   |        |          |        |  |       |      
|Capital spending by segment:                   |                                                                  |                                                          |        |              |        |        |        |              |         |        |       |        |        |   |        |          |        |  |       |      
| Brazil                                       |                                                                  | $                                                        | 1,059  |              |        | $      | 1,955  |              |         |        | (45.8 | )%     |        | $ | 3,486  |          |        |  | (43.9 | )%   
| Mexico                                       |                                                                  |                                                          | 249    |              |        |        | 217    |              |         |        | 14.7  |        |        |   | 1,975  |          |        |  | (89.0 | )    
| Argentina                                    |                                                                  |                                                          | 7      |              |        |        | 193    |              |         |        | (96.4 | )      |        |   | 2,385  |          |        |  | (91.9 | )    
| Puerto Rico                                  |                                                                  |                                                          | 133    |              |        |        | 61     |              |         |        | 118.0 |        |        |   | 5      |          |        |  | NM    |      
| Corporate and other                          |                                                                  |                                                          | 578    |              |        |        | 3,572  |              |         |        | (83.8 | )      |        |   | 3,042  |          |        |  | 17.4  |      
|                                               |                                                                  |                                                          |        |              |        |        |        |              |         |        |       |        |        |   |        |          |        |  |       |      
|                                               |                                                                  | $                                                        | 2,026  |              |        | $      | 5,998  |              |         |        | (66.2 | )%     |        | $ | 10,893 |          |        |  | (44.9 | )%   
|                                               |                                                                  |                                                          |        |              |        |        |        |              |         |        |       |        |        |   |        |          |        |  |       |      

In the year ended December 31, 2002, our
operations required $128.3 million to fund our operating
losses, working capital and capital expenditures. For this
period, capital expenditures were $2.0 million. This was
financed through the use of initial cash and cash equivalent
balances on hand and through the issuance of $160.0 million
in senior convertible notes to AOLTW. Available cash and cash
equivalents at December 31, 2002 was $75.5 million. We
expect this cash to be sufficient to fund operations into the
first quarter of 2004.

For the twelve months ended December 31,
2001, we required $227.9 million to fund our operating
losses, working capital and capital expenditures. For this
period, capital expenditures were $6.0 million. This was
financed through the sale of $150 million in stock to
America Online, the Cisneros Group and Banco Itaú, a
reduction in our cash balances and short-term investments of
$17 million and an increase in our accounts payable totaled
$12 million. In the twelve-month period ended
December 31, 2000, our operations required
$232.6 million of cash to fund operating losses, working
capital and capital expenditures. For this period, capital
expenditures were $12.5 million. This was financed
primarily through reductions in our cash balances, and a slight
decrease in our working capital.

In order to fund our future operating and cash
requirements, on March 8, 2002, we entered into a note
purchase agreement with AOLTW. Under the note purchase
agreement, AOLTW made available to us, subject to standard
borrowing conditions, $160.0 million in exchange for senior
convertible notes of AOLA due in March 2007. We drew down the
remaining balance available to us under the note purchase

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agreement on December 30, 2002. The senior
convertible notes bear an annual coupon of 11%, payable
quarterly. The initial conversion price, subject to adjustment,
is $3.624 per share (a premium of 20% to the closing trading
price of our class A common stock of $3.020 on March 8,
2002). The senior convertible notes are convertible at any time
at the option of the holder, and will be redeemable by AOLA at
any time after September 11, 2003, subject to the
holders right to convert the senior convertible notes into
preferred stock. In addition, the senior convertible notes are
required to be repaid prior to maturity, at the option of the
holder, in the event of significant asset sales or if we raise
additional debt or equity funds. Interest is payable either in
cash or preferred stock, at our option. If interest is paid in
shares, the price per share is determined based on the average
closing price of the class A common stock for the twenty trading
dates prior to the date of payment. For the year ended
December 31, 2002, we incurred approximately
$5.2 million related to interest payable to AOLTW on the
senior convertible notes. This was comprised of approximately
$1.0 million cash payment and the issuance of 10,865,643
shares of preferred stock. Going forward, we expect to incur
approximately $17.8 million in annual interest expense as
long as the full amount of $160.0 million in senior
convertible notes are outstanding. We expect to pay future
interest amounts through the issuance of additional shares of
preferred stock, which will result in additional dilution to
existing stockholders.


In the event the $160.0 million in senior
convertible notes were to be converted by AOLTW, an additional
44,150,110 shares of preferred stock would be issued to AOLTW,
increasing the economic ownership by America Online and its
affiliates in AOLA to 52.3% and their relative voting strength
to 63.6%, also assuming conversion of the warrant granted to
America Online at the date of our IPO and the options granted to
its employees who are members of our Board of Directors.
Interest payments on the senior convertible notes over the
remaining life of the notes will total approximately
$75.8 million, assuming the notes are not converted to
stock prior to their maturity. Because we intend to pay interest
through the issuance of additional shares of preferred stock, we
expect America Onlines relative ownership and voting
strength to continue to increase over the foreseeable future.

We anticipate that the cash on hand at
December 31, 2002 will be sufficient to fund operations
into the first quarter of 2004, based upon our current operating
budget. We are currently analyzing various modifications to our
operations to address our cash needs beyond 2003. There is no
commitment or obligation from America Online, AOLTW or the
Cisneros Group to fund any of our future requirements. There can
be no assurance that we will be successful in modifying our
operations to conserve cash nor have we identified additional
financing sources at this time. An additional restriction on our
ability to obtain additional funding is that the holders of the
senior convertible notes can require that the proceeds of any
such financing be used to repay the senior convertible notes.

Table 5  Financial
Condition

(Dollars in thousands, except
percentages)


|                                          |  |              |         |              |  |        |        |  |  |  |         |   
|----------------------------------------- |  | ------------ | ------- | ------------ |  | ------ | ------ |  |  |  | ------- | --
|                                          |  |             
|                                          |  | As of       
|                                          |  |             
|                                          |  | December 31, |         | December 31, |  | %     
|                                          |  | 2002         |         | 2001         |  | Change
|                                          |  |              |         |              |  |       
|Cash and cash equivalents                 |  | $            | 75,501  |              |  | $      | 46,676 |  |  |  | 61.8    | % 
|                                          |  |              |         |              |  |        |        |  |  |  |         |   
|Current assets                            |  |              | 89,121  |              |  |        | 62,943 |  |  |  | 41.6    |   
|                                          |  |              |         |              |  |        |        |  |  |  |         |   
|Total assets                              |  |              | 100,274 |              |  |        | 84,384 |  |  |  | 18.8    |   
|                                          |  |              |         |              |  |        |        |  |  |  |         |   
|Working capital                           |  |              | 53,001  |              |  |        | 806    |  |  |  | 6,477.2 |   
|                                          |  |              |         |              |  |        |        |  |  |  |         |   
|Current liabilities                       |  |              | 36,120  |              |  |        | 62,137 |  |  |  | (41.9   | ) 
|                                          |  |              |         |              |  |        |        |  |  |  |         |   
|Long-term debt                            |  |              | 160,000 |              |  |        |       |  |  |  | 100.0   |   
|                                          |  |              |         |              |  |        |        |  |  |  |         |   
|Stockholders equity (capital deficiency) |  | $            | (97,086 | )            |  | $      | 21,123 |  |  |  | (559.6  | )%
|                                          |  |              |         |              |  |        |        |  |  |  |         |   

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|                                   |  |              |         |              |  |        |        |  |  |  |       |   
|---------------------------------- |  | ------------ | ------- | ------------ |  | ------ | ------ |  |  |  | ----- | --
|                                   |  |             
|                                   |  | As of       
|                                   |  |             
|                                   |  | December 31, |         | December 31, |  | %     
|                                   |  | 2002         |         | 2001         |  | Change
|                                   |  |              |         |              |  |       
|Total assets breakdown by segment: |  |              |         |              |  |        |        |  |  |  |       |   
| Brazil                           |  | $            | 6,818   |              |  | $      | 14,376 |  |  |  | (52.6 | )%
| Mexico                           |  |              | 7,035   |              |  |        | 11,345 |  |  |  | (38.0 | ) 
| Argentina                        |  |              | 3,959   |              |  |        | 9,262  |  |  |  | (57.3 | ) 
| Puerto Rico                      |  |              | 605     |              |  |        | 303    |  |  |  | 99.7  |   
| Corporate and other              |  |              | 81,857  |              |  |        | 49,098 |  |  |  | 66.7  |   
|                                   |  |              |         |              |  |        |        |  |  |  |       |   
|                                   |  | $            | 100,274 |              |  | $      | 84,384 |  |  |  | 18.8  | % 
|                                   |  |              |         |              |  |        |        |  |  |  |       |   

Current assets at December 31, 2002 amounted
to $89.1 million, compared to $62.9 million at
December 31, 2001. Current assets at December 31, 2002
were impacted by the issuance on December 30, 2002 of the
remaining balance of $67.0 million available to us under
the note purchase agreement with AOLTW. Current liabilities at
December 31, 2002 were $36.1 million, resulting in a
working capital balance of $53.0 million. Long-term debt of
$160.0 million at December 31, 2002 reflected the
outstanding balance of senior convertible notes issued to AOLTW.

The increase in current assets at
December 31, 2002 was attributable to the use of initial
cash balances throughout the year to finance operating losses
and other operating requirements, augmented by the funds made
available to us under the note purchase agreement with AOLTW.
The decrease in current liabilities primarily reflects a
reduction in accounts payable resulting from a reduction in cost
of revenues and sales and marketing expenditures. As discussed
above, our level of expenditures has been reduced significantly
as a result of our change in strategy to focus on higher quality
members and to limit access to our network and support services
by members who are delinquent in their payment of subscription
fees to us.

Current assets at December 31, 2001 were
$62.9 million. The decrease in current assets at
December 31, 2001 was primarily attributable to the use of
cash balances throughout the year to finance operating costs and
other operating requirements. The increase in current
liabilities in 2001 was primarily due to increases in trade
accounts payable, payables to affiliates, and accrued expenses
resulting from the growth in operations. The increases resulted
from the expansion of our AOLA country services into Mexico and
Argentina during 2001 compared to 2000 and activities related to
our agreement with America Online regarding subscribers to the
AOL-branded service in Puerto Rico.

At December 31, 2002, our material firm
operating commitments for the next five years were approximately
$48.8 million, compared to approximately $76.8 million
at December 31, 2001. Material firm operating commitments
represent our minimum obligations to third-parties under
telecommunications network contracts and obligations under
leases for office space, autos and office equipment used in the
normal course of operations. The year-over-year decrease was
achieved as a result of our initiatives related to our focus on
targeting higher quality members and the termination of members
who are delinquent in their payments to us. These actions have
resulted in expected reduced future membership levels, which in
turn has reduced our expected future network requirements. In
accordance with current accounting rules, the future rights and
obligations pertaining to such commitments are not reflected as
assets or liabilities on the accompanying consolidated balance
sheet. The following table summarizes our material firm operating

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commitments at December 31, 2002, and the
timing and effect that such obligations are expected to have on
our liquidity and cash flows in future periods:


|                          |  |                |        |             |  |           |        |       |  |   |    |  |  |   |        | 
|------------------------- |  | -------------- | ------ | ----------- |  | --------- | ------ | ----- |  | - | -- |  |  | - | ------ | 
|                          |  | 2003           |        | 2004  2007 |  | Post 2007 |        | Total
|                          |  |                |        |             |  |           |        |      
|                          |  |               
|                          |  | (In thousands)
|Nature of Firm Commitment |  |                |        |             |  |           |        |       |  |   |    |  |  |   |        | 
|Network Commitments       |  | $              | 15,027 |             |  | $         | 25,957 |       |  |   |   |  |  | $ | 40,984 | 
|Leases                    |  |                | 2,885  |             |  |           | 4,960  |       |  |   | 10 |  |  |   | 7,855  | 
|                          |  |                |        |             |  |           |        |       |  |   |    |  |  |   |        | 
|Total                     |  | $              | 17,912 |             |  | $         | 30,917 |       |  | $ | 10 |  |  | $ | 48,839 | 
|                          |  |                |        |             |  |           |        |       |  |   |    |  |  |   |        | 

Segment Results of Operations

In accordance with Statement of Financial
Accounting Standards (SFAS) No. 131,
Disclosures about Segments of an Enterprise and Related
Information, we disclose information based on the way we
organize financial information for making operating decisions
and assessing performance. We consider markets in which we have
launched our AOLA country services as operational segments and
report our operations on a country-by-country basis. In
determining reporting segments, we internally reviewed the
current management structure that reports to the chief operating
decision-maker and analyzed the reports received by that
decision-maker in order to allocate resources and measure
performance. Each of our operating segments derives its revenues
from interactive services through subscription revenues, and
advertising and other revenues. The accounting policies of the
reportable segments are the same as those described below in
Critical Accounting Policies and in the summary of significant
accounting policies contained in Note 2 of our consolidated
financial statements.

As of December 31, 2002, we internally
reported our results of operations in four geographic segments,
Brazil, Mexico, Argentina and Puerto Rico, in addition to our
Corporate and Other group. We expect that amounts related to
Argentina will not be material in future reporting periods and
that Argentina will be consolidated within Corporate and Other
as a reporting segment beginning with our report on
Form 10-Q for the quarter ended March 31, 2003. No
single customer accounted for 10% or more of our total revenues
for any of the periods presented. See Note 6 to our
consolidated financial statements for a discussion of segments.

Our revenues by type of revenue on a segment
basis are shown in the table below:

|                                                   |  |                    |        |                     |  |        |        |              |  |              |       |        |  |              |        |        |  |   |        |   |  |  |       |   |  |   |        |   |  |  |         |  
|-------------------------------------------------- |  | ------------------ | ------ | ------------------- |  | ------ | ------ | ------------ |  | ------------ | ----- | ------ |  | ------------ | ------ | ------ |  | - | ------ | - |  |  | ----- | - |  | - | ------ | - |  |  | ------- | -
|                                                   |  |                    |        |                    
|                                                   |  | Three Months Ended |        | Twelve Months Ended
|                                                   |  |                    |        |                    
|                                                   |  | December 31,       |        | December 31,        |  | %      |        | December 31, |  | December 31, |       | %      |  | December 31, |        | %     
|                                                   |  | 2002               |        | 2001                |  | Change |        | 2002         |  | 2001         |       | Change |  | 2000         |        | Change
|                                                   |  |                    |        |                     |  |        |        |              |  |              |       |        |  |              |        |       
|                                                   |  | (unaudited)        |        | (unaudited)         |  |        |        |              |  |              |       |        |  | (unaudited)  |        |       
|SUBSCRIPTION REVENUES                             
|By segment of business                             |  |                    |        |                     |  |        |        |              |  |              |       |        |  |              |        |        |  |   |        |   |  |  |       |   |  |   |        |   |  |  |         |  
| Brazil                                           |  | $                  | 5,627  |                     |  | $      | 5,256  |              |  |              | 7.1   | %      |  | $            | 25,229 |        |  | $ | 17,853 |   |  |  | 41.3  | % |  | $ | 6,950  |   |  |  | 156.9   | %
| Mexico                                           |  |                    | 6,095  |                     |  |        | 6,123  |              |  |              | (0.4  | )      |  |              | 24,906 |        |  |   | 19,579 |   |  |  | 27.2  |   |  |   | 2,379  |   |  |  | 723.0   | %
| Argentina                                        |  |                    | 375    |                     |  |        | 1,923  |              |  |              | (80.5 | )      |  |              | 1,856  |        |  |   | 7,388  |   |  |  | (74.9 | ) |  |   | 420    |   |  |  | 1,659.0 | %
| Puerto Rico                                      |  |                    | 3,167  |                     |  |        | 1,865  |              |  |              | 69.8  |        |  |              | 10,855 |        |  |   | 4,724  |   |  |  | 129.8 |   |  |   | 2,042  |   |  |  | 131.3   | %
| Corporate and other                              |  |                    | 40     |                     |  |        | 96     |              |  |              | (58.7 | )      |  |              | 152    |        |  |   | 374    |   |  |  | (59.4 | ) |  |   |       |   |  |  | 0.0     | %
|                                                   |  |                    |        |                     |  |        |        |              |  |              |       |        |  |              |        |        |  |   |        |   |  |  |       |   |  |   |        |   |  |  |         |  
|                                                   |  | $                  | 15,304 |                     |  | $      | 15,263 |              |  |              | 0.3   | %      |  | $            | 62,998 |        |  | $ | 49,918 |   |  |  | 26.2  | % |  | $ | 11,791 |   |  |  | 323.4   | %
|                                                   |  |                    |        |                     |  |        |        |              |  |              |       |        |  |              |        |        |  |   |        |   |  |  |       |   |  |   |        |   |  |  |         |  
|As a percentage of total subscription
    revenues |  |                    |        |                     |  |        |        |              |  |              |       |        |  |              |        |        |  |   |        |   |  |  |       |   |  |   |        |   |  |  |         |  
| Brazil                                           |  |                    | 36.8   | %                   |  |        | 34.4   | %            |  |              |       |        |  |              | 40.0   | %      |  |   | 35.8   | % |  |  |       |   |  |   | 58.9   | % |  |  |         |  
| Mexico                                           |  |                    | 39.8   |                     |  |        | 40.1   |              |  |              |       |        |  |              | 39.5   |        |  |   | 39.2   |   |  |  |       |   |  |   | 20.2   |   |  |  |         |  
| Argentina                                        |  |                    | 2.5    |                     |  |        | 12.6   |              |  |              |       |        |  |              | 2.9    |        |  |   | 14.8   |   |  |  |       |   |  |   | 3.6    |   |  |  |         |  
| Puerto Rico                                      |  |                    | 20.7   |                     |  |        | 12.2   |              |  |              |       |        |  |              | 17.2   |        |  |   | 9.5    |   |  |  |       |   |  |   | 17.3   |   |  |  |         |  
| Corporate and other                              |  |                    | 0.2    |                     |  |        | 0.7    |              |  |              |       |        |  |              | 0.4    |        |  |   | 0.7    |   |  |  |       |   |  |   | 0.0    |   |  |  |         |  
|                                                   |  |                    |        |                     |  |        |        |              |  |              |       |        |  |              |        |        |  |   |        |   |  |  |       |   |  |   |        |   |  |  |         |  
|                                                   |  |                    | 100.0  | %                   |  |        | 100.0  | %            |  |              |       |        |  |              | 100.0  | %      |  |   | 100.0  | % |  |  |       |   |  |   | 100.0  | % |  |  |         |  
|                                                   |  |                    |        |                     |  |        |        |              |  |              |       |        |  |              |        |        |  |   |        |   |  |  |       |   |  |   |        |   |  |  |         |  

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|                                                            |  |                    |        |                     |  |        |        |              |  |              |       |        |  |              |        |        |  |   |        |   |  |  |       |    |  |   |        |   |  |  |       |  
|----------------------------------------------------------- |  | ------------------ | ------ | ------------------- |  | ------ | ------ | ------------ |  | ------------ | ----- | ------ |  | ------------ | ------ | ------ |  | - | ------ | - |  |  | ----- | -- |  | - | ------ | - |  |  | ----- | -
|                                                            |  |                    |        |                    
|                                                            |  | Three Months Ended |        | Twelve Months Ended
|                                                            |  |                    |        |                    
|                                                            |  | December 31,       |        | December 31,        |  | %      |        | December 31, |  | December 31, |       | %      |  | December 31, |        | %     
|                                                            |  | 2002               |        | 2001                |  | Change |        | 2002         |  | 2001         |       | Change |  | 2000         |        | Change
|                                                            |  |                    |        |                     |  |        |        |              |  |              |       |        |  |              |        |       
|                                                            |  | (unaudited)        |        | (unaudited)         |  |        |        |              |  |              |       |        |  | (unaudited)  |        |       
|ADVERTISING AND OTHER REVENUES                             
|By segment of business                                      |  |                    |        |                     |  |        |        |              |  |              |       |        |  |              |        |        |  |   |        |   |  |  |       |    |  |   |        |   |  |  |       |  
| Brazil                                                    |  | $                  | 1,332  |                     |  | $      | 1,751  |              |  |              | (23.9 | )%     |  | $            | 5,526  |        |  | $ | 8,870  |   |  |  | (37.7 | )% |  | $ | 5,470  |   |  |  | 62.2  | %
| Mexico                                                    |  |                    | 674    |                     |  |        | 1,187  |              |  |              | (43.3 | )      |  |              | 2,258  |        |  |   | 5,557  |   |  |  | (59.4 | )  |  |   | 996    |   |  |  | 457.9 |  
| Argentina                                                 |  |                    | 155    |                     |  |        | 340    |              |  |              | (54.3 | )      |  |              | 445    |        |  |   | 1,766  |   |  |  | (74.8 | )  |  |   | 665    |   |  |  | 165.6 |  
| Puerto Rico                                               |  |                    | 141    |                     |  |        | 47     |              |  |              | 199.1 |        |  |              | 519    |        |  |   | 121    |   |  |  | 328.9 |    |  |   | 106    |   |  |  | 14.2  |  
| Corporate and other                                       |  |                    | 239    |                     |  |        | 92     |              |  |              | 160.3 |        |  |              | 361    |        |  |   | 211    |   |  |  | 71.1  |    |  |   |       |   |  |  | 0.0   |  
|                                                            |  |                    |        |                     |  |        |        |              |  |              |       |        |  |              |        |        |  |   |        |   |  |  |       |    |  |   |        |   |  |  |       |  
|                                                            |  | $                  | 2,541  |                     |  | $      | 3,417  |              |  |              | (25.6 | )%     |  | $            | 9,109  |        |  | $ | 16,525 |   |  |  | (44.9 | )% |  | $ | 7,237  |   |  |  | 128.3 | %
|                                                            |  |                    |        |                     |  |        |        |              |  |              |       |        |  |              |        |        |  |   |        |   |  |  |       |    |  |   |        |   |  |  |       |  
|As a percentage of total advertising and other
    revenues |  |                    |        |                     |  |        |        |              |  |              |       |        |  |              |        |        |  |   |        |   |  |  |       |    |  |   |        |   |  |  |       |  
|By segment of business                                      |  |                    |        |                     |  |        |        |              |  |              |       |        |  |              |        |        |  |   |        |   |  |  |       |    |  |   |        |   |  |  |       |  
| Brazil                                                    |  |                    | 52.4   | %                   |  |        | 51.2   | %            |  |              |       |        |  |              | 60.7   | %      |  |   | 53.7   | % |  |  |       |    |  |   | 75.6   | % |  |  |       |  
| Mexico                                                    |  |                    | 26.5   |                     |  |        | 34.7   |              |  |              |       |        |  |              | 24.8   |        |  |   | 33.6   |   |  |  |       |    |  |   | 13.8   |   |  |  |       |  
| Argentina                                                 |  |                    | 6.1    |                     |  |        | 10.0   |              |  |              |       |        |  |              | 4.9    |        |  |   | 10.7   |   |  |  |       |    |  |   | 9.2    |   |  |  |       |  
| Puerto Rico                                               |  |                    | 5.5    |                     |  |        | 1.4    |              |  |              |       |        |  |              | 5.7    |        |  |   | 0.7    |   |  |  |       |    |  |   | 1.5    |   |  |  |       |  
| Corporate and other                                       |  |                    | 9.5    |                     |  |        | 2.7    |              |  |              |       |        |  |              | 3.9    |        |  |   | 1.3    |   |  |  |       |    |  |   | 0.0    |   |  |  |       |  
|                                                            |  |                    |        |                     |  |        |        |              |  |              |       |        |  |              |        |        |  |   |        |   |  |  |       |    |  |   |        |   |  |  |       |  
|                                                            |  |                    | 100.0  | %                   |  |        | 100.0  | %            |  |              |       |        |  |              | 100.0  | %      |  |   | 100.0  | % |  |  |       |    |  |   | 100.0  | % |  |  |       |  
|                                                            |  |                    |        |                     |  |        |        |              |  |              |       |        |  |              |        |        |  |   |        |   |  |  |       |    |  |   |        |   |  |  |       |  
|BY SEGMENT OF BUSINESS                                     
| Brazil                                                    |  | $                  | 6,959  |                     |  | $      | 7,007  |              |  |              | (0.7  | )%     |  | $            | 30,755 |        |  | $ | 26,723 |   |  |  | 15.1  | %  |  | $ | 12,420 |   |  |  | 115.2 | %
| Mexico                                                    |  |                    | 6,769  |                     |  |        | 7,310  |              |  |              | (7.4  | )      |  |              | 27,164 |        |  |   | 25,136 |   |  |  | 8.1   |    |  |   | 3,375  |   |  |  | 644.8 |  
| Argentina                                                 |  |                    | 530    |                     |  |        | 2,263  |              |  |              | (76.6 | )      |  |              | 2,301  |        |  |   | 9,154  |   |  |  | (74.9 | )  |  |   | 1,085  |   |  |  | 743.7 |  
| Puerto Rico                                               |  |                    | 3,307  |                     |  |        | 1,912  |              |  |              | 73.0  |        |  |              | 11,374 |        |  |   | 4,845  |   |  |  | 134.8 |    |  |   | 2,148  |   |  |  | 125.6 | %
| Corporate and other                                       |  |                    | 280    |                     |  |        | 188    |              |  |              | 48.5  |        |  |              | 513    |        |  |   | 585    |   |  |  | (12.3 | )  |  |   |       |   |  |  | 0.0   |  
|                                                            |  |                    |        |                     |  |        |        |              |  |              |       |        |  |              |        |        |  |   |        |   |  |  |       |    |  |   |        |   |  |  |       |  
|                                                            |  | $                  | 17,845 |                     |  | $      | 18,680 |              |  |              | (4.5  | )%     |  | $            | 72,107 |        |  | $ | 66,443 |   |  |  | 8.5   | %  |  | $ | 19,028 |   |  |  | 249.2 | %
|                                                            |  |                    |        |                     |  |        |        |              |  |              |       |        |  |              |        |        |  |   |        |   |  |  |       |    |  |   |        |   |  |  |       |  
|As a percentage of total consolidated
    revenues          |  |                    |        |                     |  |        |        |              |  |              |       |        |  |              |        |        |  |   |        |   |  |  |       |    |  |   |        |   |  |  |       |  
| Brazil                                                    |  |                    | 39.0   | %                   |  |        | 37.5   | %            |  |              |       |        |  |              | 42.7   | %      |  |   | 40.2   | % |  |  |       |    |  |   | 65.3   | % |  |  |       |  
| Mexico                                                    |  |                    | 37.9   |                     |  |        | 39.1   |              |  |              |       |        |  |              | 37.7   |        |  |   | 37.8   |   |  |  |       |    |  |   | 17.7   |   |  |  |       |  
| Argentina                                                 |  |                    | 3.0    |                     |  |        | 12.1   |              |  |              |       |        |  |              | 3.2    |        |  |   | 13.8   |   |  |  |       |    |  |   | 5.7    |   |  |  |       |  
| Puerto Rico                                               |  |                    | 18.5   |                     |  |        | 10.2   |              |  |              |       |        |  |              | 15.8   |        |  |   | 7.3    |   |  |  |       |    |  |   | 11.3   |   |  |  |       |  
| Corporate and other                                       |  |                    | 1.6    |                     |  |        | 1.1    |              |  |              |       |        |  |              | 0.6    |        |  |   | 0.9    |   |  |  |       |    |  |   | 0.0    |   |  |  |       |  
|                                                            |  |                    |        |                     |  |        |        |              |  |              |       |        |  |              |        |        |  |   |        |   |  |  |       |    |  |   |        |   |  |  |       |  
|                                                            |  |                    | 100.0  | %                   |  |        | 100.0  | %            |  |              |       |        |  |              | 100.0  | %      |  |   | 100.0  | % |  |  |       |    |  |   | 100.0  | % |  |  |       |  
|                                                            |  |                    |        |                     |  |        |        |              |  |              |       |        |  |              |        |        |  |   |        |   |  |  |       |    |  |   |        |   |  |  |       |  

For the year ended December 31, 2002, our
total consolidated revenues increased to $72.1 million, up
8.5% from the year ended December 31, 2001. The increase
was driven by increases in subscription revenues from most
country services, partially offset by significant
across-the-board decreases in advertising and other revenues.
Brazil, which continues as our largest segment, increased its
total revenues by 15.1% to $30.8 million, and accounted for
42.7% of total revenues. Subscription revenue from Brazil
increased 41.3% during fiscal year 2002 to $25.2 million
while revenues from advertising and other fell 37.7% to
$5.5 million.

Total revenues from Mexico increased by 8.1%
during fiscal 2002 to $27.2 million, an amount that
represents 37.7% of total revenues. Subscription revenue from
Mexico increased 27.2% during year ended December 31, 2002
to $24.9 million, and revenues from advertising and other
fell 59.4% to $2.3 million. Mexico accounted for 37.7% of
total company revenues during the year ended December 31,
2002, flat as compared with the prior year. Total revenues from
Puerto Rico for fiscal 2002 increased 134.8% to

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$11.4 million, driven almost entirely by
subscription revenue, which increased 129.8% during the year.
Puerto Rico accounted for 15.8% of total revenues, more than
doubling its relative contribution to company-wide revenues from
2001. Total revenues from Argentina decreased by 74.9% to
$2.3 million, driven by declines in revenues from both
subscription fees and advertising and other. Argentina accounted
for 3.2% of total revenues in the year ended December 31,
2002, down from 13.8% in the year ended December 31, 2001.


Reported total revenue growth was primarily
driven by increases in the number of collections from paid
membership, partially offset by the impact of local currency
devaluations versus the U.S. dollar. Excluding the impact of
currency devaluation, total revenues increased 25.0% in the year
ended December 31, 2002, as compared with the prior fiscal
year, comprised of an increase in subscription revenue of 45.6%
and a decline in advertising and other revenues of 37.8%.
Subscription revenue from Brazil increased 71.4% in constant
currency terms versus the comparable prior year period, while
subscription revenues in Mexico and Puerto Rico increased 31.5%
and 129.8%, respectively. Subscription revenue from Argentina
decreased by 27.8% in constant currency terms.

During fiscal 2002, total revenues from our
corporate and other segment were $0.5 million, and
accounted for 0.7% of our total revenues. Subscription revenues
in the corporate and other segment were $152,000, and consisted
of subscription fees from members to the CompuServe Classic
service in Latin American countries where we do not have
operations. The CompuServe Classic service was phased out in
March 2002. Revenues from advertising and other were $361,000
and consisted primarily of revenues related to the sale of
advertising located on the keyword:Latino content area of the
U.S. service. We expect revenues derived from the keyword:Latino
content area of the U.S. service to increase to approximately
$600,000 in 2003 as a result of the revised marketing agreement
with America Online (see Item 1 
Business  U.S. Hispanics Content Area).

For the twelve-month period ended
December 31, 2001, our total consolidated revenues
increased to $66.4 million, up 249.2% from the year ended
December 31, 2000, driven by increases in both subscription
revenues and revenues from advertising and other. The
year-over-year increase in subscription revenue was driven by
the fact that all country services were operational for the full
year, as compared to the prior twelve-month period when, due to
the timing of the country launches, revenues from Mexico,
Argentina and Puerto Rico were first received only in the fourth
quarter. Total revenues in Brazil increased by
$14.3 million, or 115.2%, to $26.7 million, and
represented 40.2% of total revenues in the year ended
December 31, 2001. In constant currency terms, revenue from
Brazil increased 153% versus the prior year period. Revenues in
Mexico increased to $25.1 million, up from
$3.4 million the prior year, and accounted for 37.8% of
total consolidated revenues. At $9.2 million, Argentina was
our third largest revenue segment and accounted for 13.8% of
total consolidated revenues. This amount was up from
$1.1 million in the twelve-month period ended
December 31, 2000. Revenues from Puerto were
$4.8 million in the year ended December 31, 2001, and
accounted for 7.3% of total revenues. During fiscal 2001, our
corporate and other segment, which was comprised primarily of
revenues received subscribers to the CompuServe Classic service
in countries where we did not have an operating presence,
amounted to $0.6 million and accounted for 0.9% of total
revenues.

For the year ended December 31, 2001,
subscription revenues increased by 323.4% to $49.9 million,
up from $11.8 million in the twelve-month period ended
December 31, 2000. Subscription revenue in Brazil increased
156.9% to $17.9 million, up from $7.0 million.
Subscription revenue from Mexico increased to
$19.6 million, up $17.2 million from $2.4 million
in the prior twelve-month period, while subscription revenue in
Argentina was $7.4 million, up from $0.4 million over
the prior twelve-month period. Subscription revenue from Puerto
Rico was $4.7 million in 2001. The Mexico and Argentina
AOLA country services were launched in July and August 2000,
respectively, while we first began to receive revenue from
America Online related to the AOL-branded service in Puerto Rico
in December 2000.

Revenues from advertising and other for the year
ended December 31, 2001 increased 128.3% to
$16.5 million, up from $7.2 million in the
twelve-month period ended December 31, 2000, driven
primarily

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by full year contributions from Mexico and
Argentina following the launch of those country services in
2000. Revenue from advertising and other in Brazil, which had
been launched in December 1999, increased by 62.2% to
$8.9 million, up from $5.5 million in the prior
twelve-month period. Advertising and other revenue from Mexico
increased to $5.6 million, up $4.6 million from
$1.0 million in the twelve-month period ended
December 31, 2000, while advertising and other revenues
from Argentina increased $1.1 million to $1.8 million
over the prior twelve-month period. Revenues from advertising
and other in Puerto Rico were $0.1 million in 2001.


Our losses from operations on a segment basis are
as follows:

(Dollars in thousands)

|                                                   |  |                    |         |                     |  |        |         |              |  |              |        |        |  |              |          |        |  |   |          |   |  |  |        |    |  |   |          |   |  |  |       |   
|-------------------------------------------------- |  | ------------------ | ------- | ------------------- |  | ------ | ------- | ------------ |  | ------------ | ------ | ------ |  | ------------ | -------- | ------ |  | - | -------- | - |  |  | ------ | -- |  | - | -------- | - |  |  | ----- | --
|                                                   |  |                    |         |                    
|                                                   |  | Three Months Ended |         | Twelve Months Ended
|                                                   |  |                    |         |                    
|                                                   |  | December 31,       |         | December 31,        |  | %      |         | December 31, |  | December 31, |        | %      |  | December 31, |          | %     
|                                                   |  | 2002               |         | 2001                |  | Change |         | 2002         |  | 2001         |        | Change |  | 2000         |          | Change
|                                                   |  |                    |         |                     |  |        |         |              |  |              |        |        |  |              |          |       
|                                                   |  |                    |         |                     |  |        |         |              |  |             
|                                                   |  | (unaudited)        |         |                     |  |        |         |              |  | (unaudited) 
|Loss from operations by operating
    segment:     |  |                    |         |                     |  |        |         |              |  |              |        |        |  |              |          |        |  |   |          |   |  |  |        |    |  |   |          |   |  |  |       |   
| Brazil                                           |  | $                  | (19,136 | )                   |  | $      | (35,199 | )            |  |              | (45.6  | )%     |  | $            | (95,447  | )      |  | $ | (147,731 | ) |  |  | (35.4  | )% |  | $ | (161,070 | ) |  |  | (8.3  | )%
| Mexico                                           |  |                    | (6,138  | )                   |  |        | (17,892 | )            |  |              | (65.7  | )      |  |              | (37,268  | )      |  |   | (71,550  | ) |  |  | (47.9  | )  |  |   | (50,221  | ) |  |  | 42.5  |   
| Argentina                                        |  |                    | (546    | )                   |  |        | (5,022  | )            |  |              | (89.1  | )      |  |              | (3,141   | )      |  |   | (39,663  | ) |  |  | (92.1  | )  |  |   | (34,565  | ) |  |  | 14.8  |   
| Puerto Rico                                      |  |                    | 582     |                     |  |        | (734    | )            |  |              | (179.3 | )      |  |              | 956      |        |  |   | (7,455   | ) |  |  | (112.8 | )  |  |   | (4,859   | ) |  |  | 53.4  |   
| Corporate and other                              |  |                    | (6,158  | )                   |  |        | (7,290  | )            |  |              | (15.5  | )      |  |              | (21,729  | )      |  |   | (28,669  | ) |  |  | (24.2  | )  |  |   | (20,585  | ) |  |  | 39.23 |   
|                                                   |  |                    |         |                     |  |        |         |              |  |              |        |        |  |              |          |        |  |   |          |   |  |  |        |    |  |   |          |   |  |  |       |   
|                                                   |  | $                  | (31,396 | )                   |  | $      | (66,137 | )            |  |              | (52.5  | )%     |  | $            | (156,629 | )      |  | $ | (295,068 | ) |  |  | (46.9  | )% |  | $ | (271,300 | ) |  |  | 8.8   | % 
|                                                   |  |                    |         |                     |  |        |         |              |  |              |        |        |  |              |          |        |  |   |          |   |  |  |        |    |  |   |          |   |  |  |       |   
|As a percentage of total loss from
    operations: |  |                    |         |                     |  |        |         |              |  |              |        |        |  |              |          |        |  |   |          |   |  |  |        |    |  |   |          |   |  |  |       |   
| Brazil                                           |  |                    | 61.0    | %                   |  |        | 53.2    | %            |  |              |        |        |  |              | 60.9     | %      |  |   | 50.1     | % |  |  |        |    |  |   | 59.4     | % |  |  |       |   
| Mexico                                           |  |                    | 19.5    |                     |  |        | 27.1    |              |  |              |        |        |  |              | 23.8     |        |  |   | 24.2     |   |  |  |        |    |  |   | 18.5     |   |  |  |       |   
| Argentina                                        |  |                    | 1.7     |                     |  |        | 7.6     |              |  |              |        |        |  |              | 2.0      |        |  |   | 13.4     |   |  |  |        |    |  |   | 12.7     |   |  |  |       |   
| Puerto Rico                                      |  |                    | (1.9    | )                   |  |        | 1.1     |              |  |              |        |        |  |              | (0.6     | )      |  |   | 2.5      |   |  |  |        |    |  |   | 1.8      |   |  |  |       |   
| Corporate and other                              |  |                    | 19.7    |                     |  |        | 11.0    |              |  |              |        |        |  |              | 13.9     |        |  |   | 9.8      |   |  |  |        |    |  |   | 7.6      |   |  |  |       |   
|                                                   |  |                    |         |                     |  |        |         |              |  |              |        |        |  |              |          |        |  |   |          |   |  |  |        |    |  |   |          |   |  |  |       |   
|                                                   |  |                    | 100.0   | %                   |  |        | 100.0   | %            |  |              |        |        |  |              | 100.0    | %      |  |   | 100.0    | % |  |  |        |    |  |   | 100.0    | % |  |  |       |   
|                                                   |  |                    |         |                     |  |        |         |              |  |              |        |        |  |              |          |        |  |   |          |   |  |  |        |    |  |   |          |   |  |  |       |   

Our loss from operations for the year ended
December 31, 2002 decreased to $156.6 million, down
$138.4 million from the prior year period ended December
31, 2001. All segments significantly reduced their losses aided
primarily by cost reductions achieved through our focus on
higher quality members and the translation impact of currency
devaluations on expenditures. Brazil narrowed its year-over-year
loss by 35.4%, or $52.3 million, to $95.4 million.
Mexico reduced its loss to $37.3 million, down
$34.3 million, or 47.9%, from 2001. Argentinas loss
was reduced by 92.1% to $3.1 million, down from a loss of
$39.7 million in the year ended December 31, 2001. The
improvement in Argentina was driven by the impact of a 66%
decline in the value of the peso, in addition to reduction in
local operating activities necessitated by the economic crisis
affecting that country. Our corporate and other segment also
reduced its loss, from $28.7 million in 2001 to
$21.7 million, primarily as a result of cost reduction
efforts.

Our loss from operations for the year ended
December 31, 2001 increased to approximately
$295.1 million, an increase of $23.8 million from the
comparable prior year period. Brazil narrowed its year-over-year
loss while Mexico, Argentina and our corporate and other segment
widened their respective losses. The loss in Brazil was reduced
by $13.3 million to $147.7 million, despite the effect
of a full year of amortization expense from our Banco Itaú
marketing agreement during 2001, as compared to the less than
half-year impact recorded during calendar 2000. In addition to
the absence of one-time marketing expenditures such as our
sponsorship of the Rock in Rio music festival, losses in Brazil
were reduced by approximately $27.0 million as a result of
the impact of the devaluation of the Brazilian real versus the
U.S. dollar. The real devalued by an average of approximately
30% in 2001 from the previous year. Losses from operations in
Mexico, Argentina and Puerto Rico, meanwhile, increased
year-over-year as these country services were operational for
the full twelve-month period (as compared with less than half
during

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the prior year period), and were supported by
significant launch-related marketing expenditures during 2001.
The corporate and other segment, which is comprised mainly of
the Fort Lauderdale headquarters operation, increased its loss
to $28.7 million, due to increased staffing during 2001.
Our corporate and other segment was also affected by a charge of
approximately $2.2 million related to the workforce
reduction announced in September 2001.


Our total and long-lived assets on a segment
basis are as follows:

|                      |  |              |         |              |  |   |        | 
|--------------------- |  | ------------ | ------- | ------------ |  | - | ------ | 
|                      |  | December 31, |         | December 31,
|                      |  | 2002         |         | 2001        
|                      |  |              |         |             
|Total assets          |  |              |         |              |  |   |        | 
| Brazil              |  | $            | 6,818   |              |  | $ | 14,376 | 
| Mexico              |  |              | 7,035   |              |  |   | 11,345 | 
| Argentina           |  |              | 3,959   |              |  |   | 9,262  | 
| Puerto Rico         |  |              | 605     |              |  |   | 303    | 
| Corporate and other |  |              | 81,857  |              |  |   | 49,098 | 
|                      |  |              |         |              |  |   |        | 
|                      |  | $            | 100,274 |              |  | $ | 84,384 | 
|                      |  |              |         |              |  |   |        | 
|                     
|Long-lived assets     |  |              |         |              |  |   |        | 
| Brazil              |  | $            | 2,528   |              |  | $ | 4,756  | 
| Mexico              |  |              | 1,304   |              |  |   | 2,119  | 
| Argentina           |  |              | 304     |              |  |   | 958    | 
| Puerto Rico         |  |              | 254     |              |  |   | 56     | 
| Corporate and other |  |              | 2,593   |              |  |   | 4,069  | 
|                      |  |              |         |              |  |   |        | 
|                      |  | $            | 6,983   |              |  | $ | 11,958 | 
|                      |  |              |         |              |  |   |        | 

At December 31, 2002, we had total assets of
$100.3 million, up from $84.4 million at December 31,
2001. At December 31, 2002, our assets were primarily
concentrated in our corporate and other sector, which at
$81.9 million accounted for 81.9% of total assets. This
amount was primarily comprised of cash and cash equivalent
balances, which increased at year-end by the final issuance of
senior convertible notes to AOLTW in the amount of
$67.0 million on December 30, 2002. Assets located in
Brazil, Mexico, Argentina and Puerto Rico amounted to
$6.8 million, $7.0 million, $4.0 million and
$0.6 million at December 31, 2002, respectively, and
were comprised primarily of accounts receivable, fixed assets
and capitalized product development. Of the assets located in
Argentina, $3.5 million corresponds to our prepaid
value-added tax position. The reported dollar value of assets
located in the countries was reduced by approximately 16% due to
the translation impact of currency devaluation.

At December 31, 2001, we had total assets of
$84.4 million, of which our corporate and other segment
accounted for approximately 58.2%, or $49.1 million, of the
total. Of this amount, cash and short-term investments amounted
to $46.7 million. Assets located in the countries amounted to
$14.4 million in Brazil, $11.3 million in Mexico and
$9.3 million in Argentina at December 31, 2001. The
major part of the asset position in the corporate and other
segment was located in the United States and consisted of cash
raised during our 2001 financing round.

The year-over-year decrease in long-lived assets
located in the countries resulted mainly from the depreciation
of fixed assets over their expected useful lives and the impact
of currency devaluation on reported translated values. The
reduction in long-lived assets in the corporate and other
segment was driven by scheduled depreciation of the assets and
the write-off of leasehold improvements associated with the
partial abandonment of our lease in Fort Lauderdale.

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Our depreciation and amortization expense, and
our capital spending for the three months ended
December 31, 2002 and 2001, and the years ended
December 31, 2002 and 2001 were:

(Dollars in thousands)

|                              |  |                    |       |                     |  |      |       |      |  |   |       |  |  |   |       | 
|----------------------------- |  | ------------------ | ----- | ------------------- |  | ---- | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|                              |  |                    |       |                    
|                              |  | Three Months Ended |       | Twelve Months Ended
|                              |  | December 31,       |       | December 31,       
|                              |  |                    |       |                    
|                              |  | 2002               |       | 2001                |  | 2002 |       | 2001
|                              |  |                    |       |                     |  |      |       |     
|                              |  |                    |       |                     |  |     
|                              |  | (unaudited)        |       |                     |  |     
|Depreciation and amortization |  |                    |       |                     |  |      |       |      |  |   |       |  |  |   |       | 
| Brazil                      |  | $                  | 523   |                     |  | $    | 441   |      |  | $ | 2,580 |  |  | $ | 1,598 | 
| Mexico                      |  |                    | 285   |                     |  |      | 311   |      |  |   | 1,222 |  |  |   | 1,090 | 
| Argentina                   |  |                    | 79    |                     |  |      | 34    |      |  |   | 352   |  |  |   | 451   | 
| Puerto Rico                 |  |                    | 28    |                     |  |      | 71    |      |  |   | 80    |  |  |   | 124   | 
| Corporate and other         |  |                    | 203   |                     |  |      | 460   |      |  |   | 794   |  |  |   | 1,657 | 
|                              |  |                    |       |                     |  |      |       |      |  |   |       |  |  |   |       | 
|                              |  | $                  | 1,118 |                     |  | $    | 1,317 |      |  | $ | 5,028 |  |  | $ | 4,920 | 
|                              |  |                    |       |                     |  |      |       |      |  |   |       |  |  |   |       | 
|Capital spending              |  |                    |       |                     |  |      |       |      |  |   |       |  |  |   |       | 
| Brazil                      |  | $                  | 200   |                     |  | $    | 276   |      |  | $ | 1,059 |  |  | $ | 1,955 | 
| Mexico                      |  |                    | 22    |                     |  |      | 26    |      |  |   | 249   |  |  |   | 217   | 
| Argentina                   |  |                    |      |                     |  |      | 66    |      |  |   | 7     |  |  |   | 193   | 
| Puerto Rico                 |  |                    | 72    |                     |  |      | 15    |      |  |   | 133   |  |  |   | 61    | 
| Corporate and other         |  |                    | 84    |                     |  |      | 188   |      |  |   | 578   |  |  |   | 3,572 | 
|                              |  |                    |       |                     |  |      |       |      |  |   |       |  |  |   |       | 
|                              |  | $                  | 378   |                     |  | $    | 571   |      |  | $ | 2,026 |  |  | $ | 5,998 | 
|                              |  |                    |       |                     |  |      |       |      |  |   |       |  |  |   |       | 

Depreciation and amortization expense for the
year ended December 31, 2002 totaled $5.0 million and
was comprised of $2.6 million from Brazil,
$1.2 million from Mexico, $352,000 from Argentina and
$874,000 for corporate and other and Puerto Rico. Depreciation
and amortization expense for the year ended December 31,
2001 totaled $4.9 million and consisted of
$1.6 million, $1.1 million and $0.5 million in
Brazil, Mexico and Argentina, respectively, together with
$1.8 million in the United States and Puerto Rico.

Expenditures for long-lived assets for the year
ended December 31, 2002 totaled $2.0 million, down
significantly from $6.0 million in the prior year. This
reduction was primarily due to the completion of spending
related to the start-up and launch of operations, including the
absence of spending related to product development, offices and
computer-related assets. Expenditures for long-lived assets for
the year ended December 31, 2001 were $1.9 million,
$200,000, and $200,000 in Brazil, Mexico and Argentina,
respectively, with the remainder of $3.6 million in the
United States and Puerto Rico.

Seasonality

We expect subscriber growth to be lower during
the first and fourth calendar quarters, which is the summer
season in Brazil and Argentina, and higher during our second and
third calendar quarters, which is the winter season in these
countries. However, seasonality has been offset by the
counter-balancing effects of Mexico and our historical
membership growth following the launch of our AOLA country
services and therefore has not been pronounced to date in our
business.

Critical Accounting Policies

In 2002, the SEC issued Financial Reporting
Release No. 60, Cautionary Advice Regarding
Disclosure About Critical Accounting Policies
(FRR 60), suggesting companies provide
additional disclosure and commentary on those accounting
policies considered most critical. FRR 60 considers an
accounting policy to be critical if it is important to a
companys financial condition and results, and

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requires significant judgment and estimates on
the part of management in its application. We believe the
following represent our critical accounting policies as
contemplated by FRR 60. For a summary of all our
significant accounting policies, including the critical
accounting policies discussed below, see Note 2 to our
consolidated financial statements.




| |                    
| | -------------------
| | Revenue Recognition

For subscribers in Brazil, Mexico and Argentina
that have elected to pay their subscription fees with credit or
debit cards, or through direct debit from bank accounts, we
begin to recognize subscription revenues when the fees become
due and are confirmed as collectible. For subscribers in these
countries who pay their subscription fees through cash payment
mechanisms such as boletos, we do not begin to recognize
subscription revenues until the cash payment is received. The
vast majority of subscribers to the AOL-branded service in
Puerto Rico pay their subscription fees by credit card.
Subscribers to the AOL-branded service in Puerto Rico pay their
membership fees directly to America Online. Revenue from
subscribers to Puerto Rico, which is paid to us by America
Online, is recognized when the fees become due. Were we to begin
to recognize fees from subscribers choosing cash payment options
as revenue when they become due, our subscriber revenues and bad
debt expense would be greater than currently reported. As we
continue to acquire additional experience with the
collectibility of our cash accounts receivable, we may begin to
recognize revenue when the fees become due, although we do not
expect to do so in the near term.

Under our strategic alliance with Banco
Itaú, prior to December 14, 2002, Banco Itaú was
required to offer at least one hour of subsidized usage per
month to subscribers of the co-branded service following the
expiration of a subscribers trial period. Banco Itaú
could also choose to provide additional subsidized time to its
customers beyond the one hour obligation. Banco Itaú was
also required to pay us a nominal amount for subscribers who
have not used the service during the previous month and who were
beyond their free trial period. Amounts paid to us by Banco
Itaú on behalf of its customers for subsidies, which it
chose or was required to make, are recorded as a reduction of
marketing expenses and not as subscriber revenues. Amounts paid
directly to us by subscribers that exceed the time subsidized by
Banco Itaú are included in subscription revenues. Were we
to recognize payments from Banco Itaú as revenues, our
subscriber revenues and sales and marketing expense would be
higher than currently reported. Under the terms of the revised
marketing agreement, Banco Itaú is no longer required, but
may choose, to subsidize some of its customers. To the extent
any additional customer subsidies are received from Banco
Itaú, we will continue to record such subsidies as
reductions in marketing expenses.



| |                                                            
| | -----------------------------------------------------------
| | Valuation of Accounts
    Receivable  Reserve for Bad Debt

We estimate that the carrying amount of our trade
accounts receivable, which are primarily from subscriber fees
and advertising and other revenues, approximate their fair
market value. This requires us to estimate the portion of
accounts receivable that will ultimately be written off as
uncollectible.

For this purpose, management maintains an
allowance to provide for estimated credit losses and has the
responsibility for determining that the allowance is adequate
for probable and inherent losses relating to trade receivables
at each reporting date. Although allowances for potential credit
losses are determined based on historical experience, current
evaluation of the composition of accounts receivable and
expected credit trends, our short operating history makes
prediction of actual credit losses difficult. To the extent
actual credit losses differ from our estimates of uncollectible
accounts, the amounts we eventually collect will be adjusted to
income in the period actually collected.

We recorded net reductions to the allowance of
approximately $1.1 million during the year ended
December 31, 2002. Write-offs against the allowance totaled
approximately $800,000 during the year ended December 31,
2002. During the year ended December 31, 2001, we recorded
provisions to the allowance of approximately $2.2 million
and write-offs against the allowance of approximately $800,000.

As of December 31, 2002, we had a
value-added tax (VAT) receivable from the Argentine
government of approximately $3.2 million. This receivable,
which arose in the normal conduct of our

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business, will be recovered as we make sales in
Argentina and make collections from our customers. Given current
economic conditions in Argentina, the period of collection could
exceed two years. Were the government in Argentina to dishonor
its VAT obligation, or force its exchange for securities of
lower value, this could result in an impairment of the value of
our VAT asset. To date, we have not established any valuation
allowances for this asset.




| |                                                           
| | ----------------------------------------------------------
| | Property and Equipment  Reserve
    for Lease Abandonment

Property and equipment, including leasehold
improvements, are carried at cost less accumulated depreciation.
Depreciation or amortization is provided using the straight-line
method over the estimated useful life of each type of asset.
Amortization of leasehold improvements is computed using the
straight-line method over the terms of the leases or estimated
useful lives of the improvements, whichever are shorter.
Long-lived assets and identifiable intangibles related to those
assets to be held and used are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. In connection with
the abandonment of leased facilities at our Fort Lauderdale
offices, for the year ended December 31, 2002, we increased
the amount of space abandoned in Fort Lauderdale, and incurred a
charge of $900,000 through the establishment of an additional
reserve related to the future lease commitments for the
incremental facilities that are not expected to be used in the
future. We incurred a charge of approximately $500,000 during
the year ended 2001 for the impairment of leasehold improvements
and furniture, and established a reserve related to the future
lease commitments for the facilities that are not expected to be
utilized going forward of approximately $900,000. These reserves
will have the effect of reducing reported rent expense and
amortization expense of leasehold improvements and furniture
going forward.



| |                    
| | -------------------
| | Deferred Tax Assets

Deferred income tax assets and liabilities are
determined based on the difference between financial reporting
and the tax bases of assets and liabilities. We measure these
taxes using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse. Given our
history of operating losses, we have significant tax loss carry
forward assets which we have fully reserved to reduce their
carrying value to zero. Were we to determine that such assets
were eventually to be utilized, we would reverse the related
valuation allowances and recognize a benefit related to these
assets.



| |                                                           
| | ----------------------------------------------------------
| | Stock-Based Compensation: Accounting for
    Stock Options

AOLA follows SFAS No. 123,
Accounting for Stock-Based Compensation
(SFAS 123), which established a fair value
based method of accounting for stock-based compensation plans
and encourages entities to adopt that method of accounting for
their employee stock compensation plans. This pronouncement also
allows an entity to continue to measure compensation cost for
those plans based on Accounting Principles Board
(APB) Opinion No. 25 (APB 25),
Accounting for Stock Issued to Employeesand
disclose the pro forma net income and net income per share as if
the fair value method had been applied in measuring cost.
Compensation cost is determined based on the intrinsic value of
the stock options as required by the provisions of APB 25.

Accordingly, as a result of applying the
intrinsic value method of accounting to stock options we have
issued, no compensation expense has been recognized for options
granted with an exercise price equal to market value at the date
of grant. Expense recognized in relation to the granting of
stock options issued below market price totaled approximately
$300,000 in each fiscal year ended December 31, 2002 and
2001 for an options grant issued to our Chief Executive Officer.
Had we accounted for stock options issued to our employees using
the fair value method, our stock-based compensation expense
would have been $5.7 million in the year ended
December 31, 2002, and $15.1 million and
$9.7 million for the years ending December 31, 2001
and 2000, respectively.

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Non-Audit Services to be Performed by our
Independent Auditors

We anticipate that our independent auditors,
Ernst & Young LLP, will perform the following types of
non-audit services during the course of 2003:



| |   |                       
| | - | ----------------------
| |  | Tax advisory services 
|
| |  | Audit-related services

We will seek to obtain approval by the Audit
Committee of our Board of Directors for these non-audit services.

Forward-Looking Statements

This report and other oral and written statements
made by us to the public contain forward-looking statements
within the meaning of the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. The
forward-looking statements are based on managements
current expectations or beliefs 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. Such statements address the following subjects:
plans for future expansion of our network, efforts to improve
the quality of our membership base and the results of those
efforts, future membership levels and growth rates, terminations
of subscribers of the Banco Itaú co-branded service and the
impact of these terminations to us, future advertising and other
revenues, the benefits we expect to receive from our strategic
alliance with Banco Itaú and marketing agreements with
other partners, future marketing efforts, future costs of
revenues and future costs and expenses, future losses, the
method of payment of interest on the AOLTW notes, our
expectation that current cash on hand will be sufficient to fund
operations into the first quarter of 2004, expected improvements
and expansion of telecommunication services and infrastructure
in Latin America, pricing of telephone services and related
regulations in Latin America, our ability to effectively
compete, America Onlines ability to protect our
intellectual property rights, the adequacy of our network
infrastructure and the disputed amounts with America Online.

Risk Factors

The following factors, among others, could cause
actual results to differ materially from those described in the
forward-looking statements:



| |                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | America Online, AOLTW and the Cisneros Group
    Control Our Company, May Have Interests that Conflict With the
    Interests of Class A Common Stockholders and Are Free to Place
    Their Interests Ahead of Those Stockholders

Because America Online/AOLTW and the Cisneros
Group operate in the interactive services and media industries,
their current control of approximately 51.6%, and 45.2%,
respectively, of the voting power of our outstanding capital
stock creates actual and potential conflicts of interest between
them and us. Neither our restated certificate of incorporation
nor our agreements with America Online, AOLTW and the Cisneros
Group prevent them from pursuing other opportunities that might
be disadvantageous to us, acquiring a minority interest in
businesses that compete with us or, in some instances, directly
competing with us. Consequently, they each have the power to
take actions that may be directly opposed to our interests and
the interests of the class A common stockholders.



| |                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If We Are Not Able to Convert Our Subscribers
    Into Paying Subscribers, or Are Unable to Retain Paying
    Subscribers, We Will Not be Able to Increase Our Revenues as
    Planned

We have had difficulty in converting trial
subscribers and subscribers who choose non-credit card payment
options into subscribers who pay on a timely basis. In addition,
our turnover rate among paying subscribers continues at very
high levels. If we fail to successfully convert trial and
non-credit card payment subscribers, or if we fail to retain
paying subscribers, we will have difficulty increasing our
revenues and reducing our operating losses. Historically, a
substantial majority of our subscribers who have

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chosen non-credit card payment methods have not
made payments on their accounts following the end of their free
trial periods or have not made timely payment.


Because our marketing efforts generally include
offering a free trial period to our subscribers, significant
portions of our subscribers are in their free trial period.



| |                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------
| | If Our Relationship With Banco Itaú Is
    Not Successful, Our Reputation, Financial Condition and
    Competitive Position May be Harmed

Our revised strategic marketing alliance with
Banco Itaú is subject to a number of risks and
uncertainties. We issued 31,700,000 shares of our class A common
stock to Banco Itaú on August 11, 2000. If we are
unable to receive the expected benefits from this alliance, our
business could suffer. For example:



| |   |                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | If we and Banco Itaú are not successful in
    attracting a significant number of subscribers, or if these
    subscribers do not choose to pay for the service, we will not
    achieve the revenue levels that we expect.                             
|
| |  | If we and Banco Itaú disagree on the
    direction of the alliance, it is unlikely we will fully recover
    the value of the shares issued to Banco Itaú.                                                                                              
|
| |  | Because our agreement with Banco Itaú
    severely limits our ability to enter into strategic
    relationships with other financial institutions in Brazil, we
    may be unable to take advantage of potentially lucrative
    business opportunities.
|
| |  | Because we and Banco Itaú are marketing a
    co-branded service, if Banco Itaú experiences any financial
    difficulties or negative publicity for any reason, our
    reputation and financial condition could be adversely affected.                



| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | We Have Experienced Substantial Losses and We
    May Not Achieve or Maintain Profitability

We are at an early stage of development in a new
and rapidly evolving market. We incurred cumulative net
operating losses of approximately $752.0 million from
December 15, 1998, the date of our inception, through
December 31, 2002. We expect to continue to incur net
losses as we expend substantial resources to develop our
business. We cannot predict what impact, if any, continued
losses will have on our ability to finance our operations in the
future. We will need to generate significant revenues to achieve
profitability and we may not be able to do so.



| |                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because America Online, AOLTW, the Cisneros
    Group and Banco Itaú Do Not Have Any Commitment to Fund Our
    Capital Requirements, If We Are Unable to Obtain Additional
    Financing from Them or Other Sources, We May be Unable to
    Sustain Our Business

We anticipate that cash on hand will be
sufficient to fund operations into the first quarter of 2004
based upon our current operating budget. There is no assurance
that additional funding will be obtained on favorable terms, if
at all, or that the holders of the senior convertible notes
issued to AOLTW will not require the proceeds of any such
financing to be used to repay the senior convertible notes. To
the extent that the holders of the senior convertible notes
require the proceeds of any such financing to be used to repay
the senior convertible notes, the funds would not be available
for use by the Company. Any additional equity financing, if
available, may be dilutive to our stockholders, and any debt
financing, if available, may involve restrictions on our
financing and operating activities.



| |                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If America Online and the Cisneros Group Fail
    to Agree on Matters Related to Our Business, Our Business May be
    Adversely Affected for as Long as They Remain in
    Deadlock

Because America Online and the Cisneros Group
jointly control AOLA through provisions contained in our
restated certificate of incorporation, restated by-laws, and
stockholders agreement, either America Online or the
Cisneros Group can block a wide variety of actions, including
marketing activities, budgetary

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authorizations and changing significant corporate
governance provisions in our restated certificate of
incorporation and restated by-laws. Our inability to carry out
these actions may adversely affect our business.




| |                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our Potential Issuance of Stock Upon the
    Conversion of Our Convertible Debt and/or Our Payment of
    Interest Under the Notes in Additional Stock Will Cause
    Substantial Dilution and May Depress the Price of Our Class A
    Common Stock

The conversion of the senior convertible notes
and/or the payment of interest on the senior convertible notes
in stock will result in substantial dilution to the interests of
our class A stockholders and could decrease the price of our
stock. A decline in the price of our class A common stock could
encourage short sales of our class A common stock, which could
place further downward pressure on the price of our stock. We
expect to pay interest on the notes issued to AOLTW through the
issuance of additional shares.



| |                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our Revenues Have Been Impacted by Devaluation
    of Local Currencies. Because Most of Our Revenues Are Paid in
    Latin American Currencies, Our Reported Revenues Decline as
    These Currencies Devalue Relative to the U.S. Dollar

Although our reporting currency is the U.S.
dollar, most of our revenues are received in the currencies of
the countries in which we offer our interactive services. The
currencies of many Latin American countries, including Brazil,
Mexico and Argentina, have experienced substantial volatility
and devaluation in the past. Our revenues will decline in value
if the local currencies in which we are paid devalue relative to
the U.S. dollar, which would adversely affect our business.



| |                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------
| | Intense Competition in Latin America May
    Adversely Affect Our Ability to Generate Revenues and Acquire
    Market Share

We compete in a marketplace with a wide range of
competitors, including providers of online and Internet access
services and portals. Competition is intense and may increase,
which could adversely affect our ability to generate revenues
and acquire market share. Furthermore, providers of free
Internet access in Brazil have continued to attract significant
numbers of new users.

We compete with providers of Spanish- and
Portuguese-language interactive services, including Internet
access services, portals, search engines and Web directories. We
compete in the broader Latin American regional market as well as
in country specific local markets. Our principal regional market
competitors include Terra Lycos, an affiliate of Telefonica, and
Microsoft (MSN). Our primary local competitors in our core
target countries include UOL and free services provided by
Internet Gratis (iG), Super11 and iBest in Brazil; Telmex in
Mexico, which has an alliance with Microsoft for the development
of content and offers a Prodigy-branded service; Ciudad Internet
and Arnet, which is owned by Telecom, in Argentina; and Puerto
Rico Telephone Company, AT&T, Earthlink and Juno in Puerto
Rico. There are currently many other Internet access providers
in Latin America.

Some of our competitors and potential future
competitors may have the following advantages: longer operating
histories, greater name recognition in some markets, better
access to capital and larger established customer bases.

Our competitors may develop interactive services
that achieve greater market acceptance and new competitors may
emerge and acquire significant market share. Further,
competitors that own or have established alliances with cable,
satellite or telecommunications companies may have distribution,
technical or financial advantages, including the ability to
offer Internet access services at lower prices or for free.



| |                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Volatile Economic, Social and Political
    Conditions in Latin America Could Make it Difficult for Us to
    Develop Our Business, Generate Revenues or Achieve or Sustain
    Profitability

Economic, social and political conditions in
Latin America are volatile. This volatility could make it
difficult for us to develop our business, generate revenues or
achieve or sustain profitability. Historically,

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volatility has been caused by currency
devaluations, significant governmental influence over many
aspects of local economies, imposition of trade barriers and
political, social and economic instability.




| |                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because America Online and the Cisneros Group
    Control Our Ability to Offer New Types of Interactive Services,
    Our Revenues, Growth and Ability to Compete May be Adversely
    Affected

Because of restrictions and limitations in our
charter documents, we may not be able to respond quickly, or at
all, to new services offered by competitors or take advantage of
new business opportunities, which could adversely affect our
growth or reduce our revenues.

First, we cannot engage in any business activity
other than providing PC-based and AOL-branded TV- and
wireless-based interactive services in Latin America without the
approval of America Online and the Cisneros Group for as long as
America Online and the Cisneros Group own a certain threshold
number shares of our stock. Second, even if America Online
acquires or develops AOL-branded wireless-based online services,
we will not be able to offer these services or AOL-branded TV
services in Latin America, although we have the license to do
so, without the approval of both of the directors appointed by
America Online and the Cisneros Group who serve on the special
committee of our board of directors. Disputes may also arise
with America Online over whether our licensed rights extend to
particular services, due to possible ambiguities in the terms
PC-based, TV-based and
wireless-based services.

Also, we are prevented from offering our services
to Spanish- and Portuguese-speaking consumers in countries
outside of Latin America.



| |                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Limitations and Conditions on Our Rights to
    Offer AOL-Branded Online Services and Portals in Latin America
    Could Harm the Value of These Rights and Our Ability to
    Effectively Compete

We have entered into a license agreement with
America Online under which we have exclusive rights to offer
AOL-branded PC-based online services and, as they are developed
by America Online, AOL-branded TV- and wireless-based online
services in Latin America. These rights to use America
Onlines brand name and services are vital to our success
as an interactive services provider. However, they are subject
to important conditions and limitations, some of which are
beyond our control, which could preclude us from exercising our
rights or materially diminish their value to us and could
adversely affect our business.

First, we have no rights to offer AOL-branded
wireless-based online services unless the services are developed
by America Online for commercial launch before August 7,
2004. Second, we will lose our exclusivity: (i) to
AOL-branded PC-based online services, upon the later of
December 15, 2003 or the date on which either America
Online or the Cisneros Group owns 20% or less of our outstanding
capital stock as of August 7, 2000; and (ii) to
AOL-branded TV- and wireless-based online services, upon the
later of August 7, 2005 or the date on which either America
Online or the Cisneros Group owns 20% or less of the outstanding
capital stock of AOLA. Third, America Online may terminate our
license agreement if we materially breach its terms. Fourth, our
license to offer a network of Spanish- and Portuguese-language
AOL-branded portals in Latin America is non-exclusive. Except
for the CompuServe Classic-branded services, we have no rights
to market non-AOL-branded interactive services owned by America
Online, including Netscape, MapQuest and Moviefone. These
limitations may prevent us from pursuing potentially lucrative
business opportunities.



| |                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If the Telecommunications Networks We Use Are
    Not Reliable or Are Not Able to Accommodate Our Anticipated
    Needs, the Quality of Our Online Services and Our Ability to
    Make Our Online Services Available to Our Members Would be
    Harmed

We depend entirely upon third-party
telecommunications network providers to transmit data between
America Onlines servers in the U.S. and our members and
content providers in Brazil, Mexico and Argentina. If these
third-party telecommunications networks do not function
properly, the quality of our

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online services, or even our ability to deliver
our online services, would be compromised, which would adversely
affect our business.


Our primary areas of concern involve the capacity
and reliability of these networks. We anticipate that we will
need to enter into additional network contracts. If our
third-party network providers lack the capacity to accommodate a
rapid increase in use of our online services, members may
encounter delays in accessing and using our online services. In
addition, if our third-party telecommunications network
providers experience severe financial difficulties, our service
could be interrupted.



| |                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Underdeveloped Local and Long Distance
    Telephone Service May Limit the Growth of the Internet in Latin
    America, Which Will Harm Our Ability to Generate Revenues From
    Our Interactive Services

If improvements to and expansion of the Latin
American local and long distance telephone service are not
continued, our ability to deliver our interactive services to
consumers and the market acceptance of online services and the
Internet in Latin America will be jeopardized and our business
will suffer. Members and users of our interactive services
initiate access through local and long distance telephone lines.
Local and long distance telephone service in Latin America is
significantly less developed than in the U.S. The quality and
availability of local and long distance telephone service may
vary considerably within a particular country, which may affect
the rate at which we are able to expand our interactive services
to potential consumers on a national scale. Moreover, adequate
quantities of local and regional telephone lines may not be
readily available should online service and Internet use
increase more rapidly than anticipated.



| |                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Past and Future Media Coverage Could Adversely
    Affect Consumer Acceptance of Our Interactive Services, Which
    Could Negatively Impact Our Ability to Acquire Market Share and
    Generate Revenues

The interactive services industry, including our
company, experiences heightened media coverage. Past and future
media coverage of our company and our interactive services could
adversely affect consumer acceptance of our interactive services.



| |                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our Servers, Which Are Owned and Maintained by
    America Online, May be Subject to System Failures, Computer
    Viruses or Other Unanticipated Problems That May Damage Our
    Reputation and Result in a Loss of Members and in a Decrease in
    Use of Our Portals

Any damage to or failure of America Onlines
servers could adversely impact our business. The host computers
that run our interactive services, which we refer to as our
servers, are owned and maintained by America Online in three
locations within the U.S. Our operations, therefore, depend
entirely on America Onlines ability to protect this
equipment and the information stored there against events such
as damage by fire, power loss, failures by third-party service
providers, computer viruses and unauthorized intrusions.



| |                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If the Cost of Local Access Calls Does Not
    Continue to Decline in Latin America, the Market for Our
    Services May be Limited, Which Could Reduce Our Revenues From
    Subscription Fees

Unlike in the U.S., local calls are metered in
many Latin American countries and online service and Internet
users pay for Internet access fees as well as local calls that
connect them to an Internet access provider. We believe this has
had a negative impact on the growth of online services and
Internet use in Latin America. If telephone call charges do not
continue to decrease, our revenues may decline because consumers
may be unwilling to pay both subscription fees for Internet
access and fees for local calls.



| |                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If We Fail to Adapt Our Online Services to
    Accommodate Faster Methods of Internet Access or if We Fail to
    Offer New Technologies, We May Lose Members or Fail to Attract
    New Members and Our Revenues May Decline

Unless we can accommodate high-speed Internet and
online service access, new technologies, such as TV- and
wireless-based services, and operating system platforms other
than Windows 95, Windows 98, Windows 2000, Windows ME and
Windows XP, our interactive services will be less appealing to
consumers and our revenues may decline. We expect high-speed
Internet and online service access to

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become more widely available in Latin America. We
will be at a competitive disadvantage if we cannot allow our
members to connect to our online services at these higher speeds
or over new technologies. To date, we have not offered
high-speed Internet access services.




| |                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We May Become Subject to Burdensome Government
    Regulations Affecting Interactive Services, Which Could Increase
    Our Costs of Doing Business or Impair Our Ability to Generate
    Revenues

The legal and regulatory environment that
pertains to interactive services in Latin America remains
uncertain and may change. Latin American countries may adopt
laws and regulations or apply existing laws to interactive
services, including commerce and online service and Internet
advertising. Uncertainty and new regulations could increase our
costs, prevent us from delivering our interactive services and
slow the growth of the Internet significantly, which could delay
growth in demand for our interactive services and limit our
ability to generate revenues.

New and existing laws and the interpretation of
existing laws may cover issues such as: copyright, trademark and
patent infringement, access to networks, sales and other taxes,
content provided on our services, user privacy and data
protection, pricing controls and cross-border commerce.



| |                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------
| | Reduced Sales of Personal Computers in Latin
    America May Impact the Potential Market for Subscribers to Our
    AOLA Country Services

Growth in subscription revenues may be negatively
impacted by the slowdown in sales of personal computers which
has taken place throughout most of Latin America as a result of
recent economic volatility. The lower growth in the number of
personal computers may hamper our ability to attract new
subscribers to our AOLA country services at rates which we
expected.



| |                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because Our Licensed Rights to America
    Onlines Trademarks and Domain Names Are a Valuable Asset
    and Integral to Our Brand Identity, Unauthorized Use of
    Intellectual Property That We License From America Online Could
    Lead to Public Confusion About Our Brand and Adversely Affect
    Our Business

America Onlines or our own inability to
protect our licensed rights to America Onlines trademarks
and domain names against infringement or misappropriation could
lead to public confusion about our brand and adversely affect
our business. For example, America Online experienced difficulty
in obtaining the rights to the domain name www.aol.com.br in
Brazil. Similarly, in Brazil, Mexico and Argentina, America
Online has initiated opposition proceedings to prevent
registration of marks by third parties that are confusingly
similar to America Onlines marks. We cannot assure that
America Online will prevail in any legal proceedings or be able
to register successfully all of the domain names that relate to
its trademarks.



| |                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------
| | Because Credit Card Penetration in Latin
    America is Limited, Our Ability to Attract Members Who Pay on a
    Timely Basis May be Affected

Credit card penetration in the markets we serve
in Latin America is significantly lower than in the United
States. This limits the number of potential subscribers to our
AOLA country services who could pay by credit card. We have had
difficulty collecting payments from subscribers who pay be means
other than credit cards.



| |                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If We Are Not Able to Satisfy the Continued
    Listing Requirements of the Nasdaq SmallCap Market, Our
    Class A Common Stock Could be Delisted Resulting in Reduced
    Liquidity For Our Stockholders and a Possible Lower Stock
    Price

Our class A common stock is currently not in
compliance with Nasdaqs required minimum bid price of
$1.00. The closing bid price of our class A common stock must be
above $1.00 for at least ten consecutive trading days starting
no later than June 23, 2003 or our class A common
stock will be delisted from the Nasdaq SmallCap Market. In
addition, in the past, we have had difficulty complying with
other

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Nasdaq listing requirements. If our stock were
delisted from the Nasdaq SmallCap market, our stockholders could
have reduced liquidity and the price of our stock could decrease.




| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | We Have a Number of Arrangements With
    Telecommunications Network Providers That Have Not Been
    Formalized.

We have several arrangements with
telecommunications providers that have not been memorialized in
written contracts. As a result, these telecommunication
providers could attempt to change the terms under which they
provide service to us or terminate their relationship with us at
any time. In addition, a change in telecommunications
regulations could encourage these providers to attempt to change
the terms under which they provide service or terminate their
relationships with us.






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    about Market Risk

Our reporting currency is the U.S. dollar.
However, most of our revenues are received in the currencies of
the countries in which we offer our interactive services. The
currencies of many Latin American countries, including Brazil,
Mexico, and Argentina, have recently experienced substantial
volatility, including devaluation of their currencies. From
January 1, 2002 through March 12, 2003, the Brazilian
real devalued 33.4% and the Argentine peso devalued 66% from
January 11, 2002 (the date of resumption of trading in the
Argentine peso). The Mexican pesos devalued by approximately
15.3% from January 1, 2002 through March 12, 2003. If
the currencies of the countries in which we operate depreciate
and we do not or are not able to increase our prices, our
revenues from our services will decline in U.S. dollar terms.
Due to our constantly changing currency exposure and the
substantial potential volatility of currency exchange rates, we
cannot predict the effect of exchange rate fluctuations on our
business. However, we believe that to the extent that we have
expenses in excess of revenues in each of our principal
currencies, our economic exposure to currency fluctuations will
be reduced. Therefore, to date, we have not tried to limit our
exposure to exchange rate fluctuations by using foreign currency
forward exchange contracts for hedging. Our business may be
adversely affected as a result of foreign currency exchange rate
fluctuations if we fail to enter into economic hedging
transactions. Future currency exchange losses may be increased
if we become subject to exchange control regulations restricting
our ability to convert local currencies into U.S. dollars.

Recent developments in Argentinas economic
and political arenas suggest a continued risk of further
currency devaluation. As of December 31, 2002, we had net
tangible assets in Argentina totaling approximately
$4.0 million, of which approximately $3.2 million is
related to a VAT receivable from the Argentine government. The
short-term portion of the VAT receivable, which is equal to
$0.3 million, is classified under other receivables in
Current Assets while the long-term portion, which is equal to
$2.9 million, is classified under Other Assets in the
Consolidated Balance Sheet at December 31, 2002. This VAT
receivable is not subject to expiration, although its value is
exposed to the fluctuation of the value of the Argentine peso.

To date, our consolidated results of operations
have not been materially impacted by inflation, although rates
of inflation have been increasing recently. Inflation was 12% in
Brazil during calendar 2002, an increase from 6% in calendar
2001. Inflation in Argentina from January 2002 through February
2003 reached a cumulative 40%.

We are exposed to market risk as it relates to
changes in the market value of our investments. As of
December 31, 2002, we had no material investments in
marketable securities.






|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

Reference is made to the financial statements
listed under the heading (a) (1) Consolidated
Financial Statements of Item 15 of this report, which
financial statements are incorporated herein by reference in
response to this Item 8.

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|        |                                                                                              
|------- | ---------------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial
    Disclosure.

None.




PART III




Item 10.     Directors
and Executive Officers of the Registrant

Board Structure

Our board consists of 14 directors who are
elected annually.

America Online, Inc. and the Cisneros Group are
each entitled to elect five directors:

America Online, Inc. has elected:



| |   |                    
| | - | -------------------
| |  | Janice Brandt;     
|
| |  | J. Michael Kelly;  
|
| |  | Michael J. Lynton; 
|
| |  | Joseph A. Ripp; and
|
| |  | Gerald Sokol, Jr.  

The Cisneros Group has elected:



| |   |                           
| | - | --------------------------
| |  | Steven I. Bandel;         
|
| |  | Gustavo A. Cisneros;      
|
| |  | Ricardo J. Cisneros       
|
| |  | Robert S. OHara, Jr.; and
|
| |  | Cristina Pieretti         

Our three remaining directors are:



| |   |                       
| | - | ----------------------
| |  | Vernon E. Jordan, Jr.;
|
| |  | William H. Luers; and 
|
| |  | M. Brian Mulroney     

We currently have a vacancy on our Board of
Directors, which resulted from the resignation of Roberto Egydio
Setubal on July 31, 2002. We do not expect this vacancy to
be filled at this time.

Biographical Information

The individuals listed below are our executive
officers or members of our board of directors, as indicated. The
stated age of each such individual is as of March 31, 2003.

|                              |  |     |    |          |  |                                                         
|----------------------------- |  | --- | -- | -------- |  | --------------------------------------------------------
|Name                          |  | Age |    | Position
|                              |  |     |    |         
|Charles M. Herington          |  |     | 43 |          |  | President and Chief Executive Officer                   
|Osvaldo Baños                 |  |     | 47 |          |  | Executive Vice President and Chief Financial
    Officer
|Milton P. Brice               |  |     | 43 |          |  | Treasurer and Controller                                
|David A. Bruscino             |  |     | 40 |          |  | Vice President, General Counsel and Secretary           
|Eduardo A. Escalante Castillo |  |     | 45 |          |  | President, AOL Mexico                                   
|Milton R. Camargo             |  |     | 45 |          |  | President, AOL Brasil                                   

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|                      |  |     |    |          |  |                                                  
|--------------------- |  | --- | -- | -------- |  | -------------------------------------------------
|Name                  |  | Age |    | Position
|                      |  |     |    |         
|Travis Good           |  |     | 42 |          |  | Vice President, Technology and Operations        
|Eduardo Hauser        |  |     | 34 |          |  | Vice President, AOL Services and Business Affairs
|Gustavo Rubio         |  |     | 37 |          |  | Vice President, Interactive Marketing            
|Steven I. Bandel      |  |     | 49 |          |  | Director                                         
|Janice Brandt         |  |     | 52 |          |  | Director                                         
|Gustavo A. Cisneros   |  |     | 57 |          |  | Director                                         
|Ricardo J. Cisneros   |  |     | 55 |          |  | Director                                         
|Vernon E. Jordan, Jr. |  |     | 67 |          |  | Director                                         
|J. Michael Kelly      |  |     | 46 |          |  | Director                                         
|William H. Luers      |  |     | 73 |          |  | Director                                         
|Michael Lynton        |  |     | 43 |          |  | Director                                         
|M. Brian Mulroney     |  |     | 64 |          |  | Director                                         
|Robert S. OHara, Jr. |  |     | 63 |          |  | Director                                         
|Cristina Pieretti     |  |     | 51 |          |  | Director                                         
|Joseph A. Ripp        |  |     | 51 |          |  | Director                                         
|Gerald Sokol, Jr.     |  |     | 40 |          |  | Director                                         

Charles M.
Herington.Mr. Herington has been
our president and chief executive officer since February 1999.
Before joining AOLA, Mr. Herington served as president of
Revlon America Latina from January 1998 to February 1999. From
1990 through 1997, Mr. Herington held a variety of senior
management positions with PepsiCo Restaurants International,
including regional vice president of KFC, Pizza Hut and Taco
Bell for South America, Central America and the Caribbean from
September 1995 to September 1997, regional vice president of KFC
for Latin America from February 1994 to September 1995, general
manager of KFC Puerto Rico from February 1992 to February 1994,
general manager of franchise markets for KFC Latin America from
February 1991 to February 1992 and marketing director for KFC
for Latin America from May 1990 to February 1991. Between 1981
and 1990, Mr. Herington served in various managerial
positions at The Procter & Gamble Company.
Mr. Herington is also a director of Adolph Coors Company
and its principal subsidiary, Coors Brewing Company.

Osvaldo Baños.Mr. Baños has been our executive vice president and
chief financial officer since September 2002. From June 1999 to
September 2002, Mr. Baños was a partner and executive
officer of Gemini Group, a consulting and venture capital firm
in Buenos Aires, Argentina. From July 1997 to May 1999,
Mr. Baños served as president and chief executive
officer of Buenos Aires Embotelladora, S.A., a bottler of Pepsi
products in Latin America. From 1981 to 1996,
Mr. Baños served in various executive positions at
PepsiCo, Inc.

Milton P. Brice.Mr. Brice has served as our treasurer since June 2000, and
our treasurer and controller since December 2001. From July 1984
to May 2000, Mr. Brice held a variety of management
positions at The Procter & Gamble Company, primarily in the
Latin America Division. From September 1994 to November 1998,
Mr. Brice was Latin America regional treasurer; from June
1991 to August 1994, he was finance manager for Procter &
Gamble Argentina; and from June 1990 to May 1991, he was
regional product supply finance manager for Latin America.

David A. Bruscino.Mr. Bruscino has been our vice president, general counsel
and secretary since May 2000. Since February 2003,
Mr. Bruscino has also held the position of strategic
consultant with our Brazilian subsidiary, AOL Brazil. From
September 1988 to April 2000, Mr. Bruscino was an attorney
with the law firm of Baker & Hostetler LLP in
Cleveland, Ohio, and was a partner of that firm beginning in
1996.

Eduardo A. Escalante
Castillo.Mr. Escalante is
president and general manager of our Mexican subsidiary, AOL
Mexico, a position he has held since November 1999. Prior to
that, from September 1998

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to November 1999, Mr. Escalante was vice
president of Alestra, a joint venture of AT&T, Grupo Alfa
and Bancomer. From January 1996 to August 1998,
Mr. Escalante was director of marketing and from November
1994 to December 1995 he served as director of strategic
planning for Alestra. From May 1992 to October 1994, he served
as marketing director and from June 1991 to April 1992 as the
manager of planning and new product development for Sigma
Alimentos, the food segment of Grupo Alfa.


Milton R. Camargo.Mr. Camargo has been the president and general manager of
our Brazilian subsidiary, AOL Brazil, since March 28, 2003.
Prior to that, he served as the chief operating officer of AOL
Brazil beginning in May 1, 2001, having started with AOL
Brazil in July 2000 as the business unit director for the AOLA/
Banco Itaú relationship. From July 1997 to July 2000, Mr.
Camargo served as president of the Brazil Porto Alegre South
Mission of the Church of Jesus Christ of the Latter-Day Saints.
From February 1996 to June 1997, he worked for Philips do Brasil
as marketing director in the Lighting Division. From April 1991
to January 1996, he worked for Otis Elevator Company, a
subsidiary of United Technologies Corporation, in various
positions, culminating in the position of international
commercial division manager. Mr. Camargo received his MBA from
Brigham Young University in 1991 and his bachelors degree
in civil engineering from the Instituto Militar de Engenharia in
Rio de Janiero, Brazil in 1982.

Travis Good.Mr. Good has been our vice president of technology and
operations since March 1999. From May 1995 to February 1999, he
held a variety of management positions at America Online,
including general manager for America Onlines Global
Network Navigator and director of product marketing for AOL
client software. From January 1995 to May 1995, he was director
of Internet services for Cable & Wireless. From March
1994 to January 1995, Mr. Good served as general manager of
GE Information Services distributorship in Mexico. From
December 1987 to March 1994, he served in a variety of positions
at General Electric Corporation.

Eduardo Hauser.Mr. Hauser is our vice president of AOL services, a
position he has held since January 2001. Mr. Hauser has
also been our vice president of business affairs since January
2002. From March 1999 to January 2001, Mr. Hauser served as
our vice president of corporate development. Before joining
AOLA, Mr. Hauser was employed from September 1988 to March
1999 by different companies in the Cisneros Group, serving in a
variety of positions, including vice president, news, of
Venevisión from September 1997 to March 1999, and as
managing director of Highgate Properties, a company within the
Cisneros Group, from September 1993 to September 1997.

Gustavo Rubio.Mr. Rubio has served as our vice president of interactive
marketing since July 2002. From November 2000 to July 2002,
Mr. Rubio was vice president of sales of StarMedia Network
Inc. From March 1985 to September 2000, he served in various
marketing positions with United Airlines, culminating in the
position of general manager.

Steven I. Bandel.Mr. Bandel has been a member of our board of directors
since January 2000 and was appointed to the board by the
Cisneros Group. Since January 1995, Mr. Bandel has held
several senior management positions at companies within the
Cisneros Group, with responsibilities in the areas of finance
and business development. Mr. Bandel has the title of
president and chief operating officer of the Cisneros Group.
Mr. Bandel is also a director of Nutritional Sourcing
Corporation, a company within the Cisneros Group.

Janice Brandt.Ms. Brandt has been a member of our Board of Directors
since April 2002 and was appointed to the board by America
Online. She has served as senior advisor to America Online since
September 2002 and before that served as vice chair and chief
marketing officer of America Online from January 2001 to
September 2002. From September 1997 to January 2001,
Ms. Brandt was president of marketing for America Online.
She served as senior vice president for marketing of America
Online from March 1993 to September 1997. Ms. Brandt was
named one of Fortune Magazines Most Powerful Women
in American Business in 1999 and 2000 and Direct Marketer
of the Year by the Direct Marketing Association of America in
2000.

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Gustavo A. Cisneros.Mr. Cisneros has been a member of our board of directors
since January 2000 and was appointed to the board by the
Cisneros Group. He is chairman and chief executive officer of
the Cisneros Group. Since 1975, Mr. Cisneros has overseen
the management and operations of the Cisneros Group and is an
executive officer and director of many of its constituent
companies. Mr. Cisneros is a director of Pan American
Beverages, Inc. Mr. Cisneros is a founding member of the
international advisory board of the Council on Foreign
Relations, as well as a member of the board of overseers of the
International Center for Economic Growth. He serves on the
chairmans international advisory council of the Americas
Society. Mr. Cisneros is a member of the international
advisory board of Columbia University, a member of the board of
overseers at Babson College and a founding member of the
advisory committee for the David Rockefeller Center for Latin
American Studies at Harvard University. He is a director of the
Joseph H. Lauder Institute of Management and International
Studies of the Wharton School of the University of Pennsylvania.
Mr. Cisneros is the brother of Ricardo J. Cisneros.

Ricardo J. Cisneros.Mr. Cisneros has been a member of our board of directors
since January 2000 and was appointed to the board by the
Cisneros Group. He is vice-chairman of the Cisneros Group. Since
1975, he has served as an executive officer and a director of a
number of the companies within the Cisneros Group. He serves on
the board of the Simon Bolivar Foundation in New York.
Mr. Cisneros is also the director of the Fundación
Cisneros and the Fundación Cultural Venevisión in
Venezuela. In 1993, Mr. Cisneros with his brother Gustavo,
established the Gustavo and Ricardo Cisneros Fund at Rockefeller
University, which focuses its research on diseases prevalent in
Latin America and provides for the annual appointment of the
Rockefeller Latin American Research Scientists.

Vernon E. Jordan,
Jr.Mr. Jordan has been a member
of our board of directors since August 2000. Since January 2000,
he has been a senior managing director of the investment banking
firm of Lazard Fréres & Co. LLC and of counsel at
the law firm of Akin, Gump, Strauss, Hauer & Feld,
L.L.P. At Akin Gump, he was a senior partner from 1992 to 1999
and a partner from 1982 to 1992. He is a member of the board of
directors of the American Express Company, Asbury Automotive
Group, Inc., Callaway Golf Company, Clear Channel
Communications, Dow Jones & Company, Inc., J.C. Penney
Company, Inc., Revlon, Inc., Sara Lee Corporation, and Xerox
Corporation. He is also on the International Advisory Board of
DaimlerChrysler AG and a senior advisor to Shinsei Bank, Ltd.
Mr. Jordan is also a trustee of Howard University.

J. Michael
Kelly.Mr. Kelly has been a
member of our board of directors since January 2000 and was
appointed to the board by America Online. Mr. Kelly has
served as chairman and chief executive officer of AOL
International since September 2002. Before that, he served as
chief operating officer of America Online from November 2001 to
September 2002. From January 2001 through October 2001,
Mr. Kelly served as executive vice president and chief
financial officer of AOLTW. He served as senior vice president
and chief financial officer of America Online from July 1998 to
January 2001. Before joining America Online, he had been
executive vice president of finance and planning and chief
financial officer of GTE Corporation since June 1997.
Mr. Kelly was appointed GTEs senior vice president of
finance in 1994.

William H. Luers.Mr. Luers has been a member of our board of directors since
August 2000. He has been chairman, chief executive officer and
president of the United Nations Association of the United States
of America since February 1999. From May 1986 to February 1999,
Mr. Luers served as president of the Metropolitan Museum of
Art in New York, New York. He is a member of the board of
directors of IDEX Corporation, Wickes Inc., and several
incorporated mutual funds managed by Deutsche Scudder
Investments, Inc.

Michael Lynton.Mr. Lynton has been a member of our board of directors
since January 2000 and was appointed by America Online.
Mr. Lynton has served as president, international and
executive vice president of AOLTW since May 2002, and president
of AOL International since January 2000. From September 1996 to
December 1999, Mr. Lynton was chairman and chief executive
officer of the Penguin Group. From September 1993 to June 1996,
Mr. Lynton served as president of Disney Publishing

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Magazines and Books, and between 1987 and 1993 he
served as president of Hollywood Pictures for The Walt Disney
Company.


The Right Honourable M. Brian
Mulroney.The Right
Honourable M. Brian Mulroney has been a member of our
board of directors since August 2000. He has been a senior
partner in the law firm of Ogilvy Renault in Montreal, Quebec,
Canada since August 1993. From September 1984 to June 1993,
Mr. Mulroney served as the prime minister of Canada. He is
a member of the board of directors of the Archer Daniels Midland
Company, Barrick Gold Corp., Trizec Properties, Inc., Cendant
Corporation, Quebecor Inc. and Quebecor World Inc.

Robert S. OHara,
Jr.Mr. OHara has been a
member of our board of directors since January 2000 and was
appointed to the board by the Cisneros Group. From 1974 to 2002,
Mr. OHara was a member of Milbank, Tweed,
Hadley & McCloy LLP, a law firm in New York, N.Y. Since
January 2002, he has been Consulting Partner and Senior Counsel
at the firm.

Cristina Pieretti.Ms. Pieretti has been a member of our board of directors
since January 2000 and was appointed to the board by the
Cisneros Group. From 1992 to March 1995, and since February
1996, Ms. Pieretti has held a number of senior management
positions with marketing and operations responsibilities at
companies within the Cisneros Group in the consumer goods,
retail and telecommunications industries. From March 1995 to
February 1996, Ms. Pieretti was a partner at
Booz-Allen & Hamilton, a consulting firm.
Ms. Pieretti has the title of executive vice president of
operations of the Cisneros Group. Ms. Pieretti is also a
director of Nutritional Sourcing Corporation, a company within
the Cisneros Group.

Joseph A. Ripp.Mr. Ripp has been a member of our board of directors since
April 2002 and was appointed to the board by America Online. He
has served as vice chairman of America Online, Inc. since
September 2002. Before that, he served as executive vice
president and chief financial officer of America Online from
January 2001 to September 2002. From July 1999 to January 2001,
Mr. Ripp was executive vice president and chief financial
officer of Time Warner Inc. From April 1994 to July 1999,
Mr. Ripp served as executive vice president, chief
financial officer and treasurer of Time Inc. Mr. Ripp is a
member of the board of trustees of Manhattan College, as well as
chairman of the finance committees of A Better Chance and the
Advertising Educational Foundation. In addition, Mr. Ripp
is a director of the Ad Council.

Gerald Sokol, Jr.Mr. Sokol has been a member of our board of directors since
January 2000 and was appointed to the board by America Online.
He has served as executive vice president of AOL International
since October 2002. Before that he served as senior vice
president of strategic planning and general manager of AOL
International from September 1999 to October 2002 and before
that was vice president of finance of AOL International since
February 1999. From August 1996 to January 1999, Mr. Sokol
held several positions with NTN Communications, Inc., most
recently serving as president, chief executive officer and
chairman of the board of directors. From July 1987 to May 1996,
Mr. Sokol held several positions with Tele-Communications,
Inc., most recently serving as vice president and treasurer.

Compliance with Section 16(a) of the
Exchange Act

Section 16(a) of the Securities Exchange Act
of 1934 requires directors, executive officers and beneficial
owners of more than 10% of our capital stock to file reports
with the Securities and Exchange Commission regarding their
ownership and changes in their ownership of our capital stock.
To our knowledge, during 2002, our officers, directors and
greater than 10% beneficial stockholders complied with all
Section 16(a) filing requirements on time, except that
Mr. Trostli did not file a Form 3 or a Form 5 on
a timely basis, Mr. Escalante did not file a Form 3 on
a timely basis, Mr. Rubio did not file a Form 3 on a
timely basis and Mr. OHara did not file a Form 4
on a timely basis.

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|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

Compensation of Directors

The directors appointed by America Online and the
Cisneros Group and the director who had been nominated by Banco
Itaú received no cash compensation for services rendered in
their capacity as directors. The other members of our board
receive a fee of $10,000 for each regular board meeting they
attend, a fee of $1,000 for each special telephonic meeting they
attend and a fee of $7,500 per fiscal year for serving on a
committee of our board. The chairperson of each committee
receives an additional fee of $2,500 per fiscal year. The
directors may receive additional compensation in a manner to be
determined by our board. All directors are eligible for
reimbursement for actual reasonable costs incurred in attending
our board and committee meetings.

Our non-employee directors also receive automatic
stock option grants under our 2000 Stock Option Plan upon
joining our board. Options granted under this plan are
non-qualified stock options. Each non-employee board member
elected for the first time to our board is granted an option to
purchase 60,000 shares of class A common stock upon the date of
his or her initial election. The exercise price of the options
is 100% of the fair market value of the class A common
stock on the date of the option grant. The options are
exercisable as of the date granted, and their term is ten years.
As of March 25, 2003, none of these options granted under
the plan had been exercised. Under AOLTWs and America
Onlines conflicts of interests standards, Janice Brandt,
J. Michael Kelly, Michael Lynton, Joseph A. Ripp and
Gerald Sokol, Jr., each a member of our board as well as an
employee of AOLTW or America Online, must transfer the economic
benefit of their options to AOLTW or America Online, as
applicable.

Compensation Committee Interlocks and Insider
Participation

Messrs. Mulroney and Luers currently
constitute our compensation committee. Neither member of our
compensation committee has been an officer or employee of our
company. No executive officer of our company serves as a member
of the board of directors or compensation committee of any
entity that has one or more executive officers serving as a
member of our board of directors or compensation committee.

Summary Compensation Table

The following table presents the total
compensation paid or accrued to our named executive officers
during our fiscal years ended December 31, 2002 and 2001
and for the twelve-month period ended December 31, 2000.
Effective January 11, 2001, we changed our fiscal year end
from June 30 to December 31.

Named executive officer refers to our
chief executive officer and to our four most highly paid
executive officers who earned more than $100,000 in the fiscal
year ended December 31, 2002, and who were employed by us
on December 31, 2002. Also included are Mr. Gustavo
Benejam and Mr. Javier Aguirre, our former Chief Operating
Officer and Chief Financial Officer, respectively. Each of
Mr. Benejam and Mr. Aguirre would have been one of our
most highly compensated executive officers, but for the fact
that they were not serving as an executive officer on
December 31, 2002. Mr. Benejams

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employment with us ended in September 2002 and
Mr. Aguirres employment with us ended in October 2002.


|                                 |  |      |      |        |  |       |         |              |  |                 |         |  |  |   |         |  |  |  |           | 
|-------------------------------- |  | ---- | ---- | ------ |  | ----- | ------- | ------------ |  | --------------- | ------- |  |  | - | ------- |  |  |  | --------- | 
|                                 |  |      |      |        |  |       |         |              |  | Securities     
|                                 |  |      |      |        |  |       |         | Other Annual |  | Underlying     
|Name and Principal Position      |  | Year |      | Salary |  | Bonus |         | Compensation |  | Options Awarded
|                                 |  |      |      |        |  |       |         |              |  |                
|Charles M. Herington (1)         |  |      | 2002 |        |  | $     | 435,000 |              |  | $               | 440,220 |  |  | $ | 30,000  |  |  |  | 150,000   | 
|President and Chief and          |  |      | 2001 |        |  |       | 410,166 |              |  |                 | 150,000 |  |  |   | 33,946  |  |  |  | 750,000   | 
|Executive Officer                |  |      | Stub | (2)    |  |       | 175,450 |              |  |                 | 188,080 |  |  |   | 30,000  |  |  |  | 1,300,000 | 
|                                 |  |      | 2000 |        |  |       | 354,124 |              |  |                 | 665,722 |  |  |   | 32,017  |  |  |  |          | 
|Osvaldo Baños(3)                 |  |      | 2002 |        |  | $     | 140,487 |              |  | $               | 231,845 |  |  |   |        |  |  |  | 250,000   | 
|Executive Vice President         |  |      | 2001 |        |  |       |        |              |  |                 |        |  |  |   |        |  |  |  |          | 
|and Chief Financial              |  |      | Stub | (2)    |  |       |        |              |  |                 |        |  |  |   |        |  |  |  |          | 
|Officer                          |  |      | 2000 |        |  |       |        |              |  |                 |        |  |  |   |        |  |  |  |          | 
|Eduardo A. Escalante Castillo(4) |  |      | 2002 |        |  | $     | 316,315 |              |  | $               | 179,860 |  |  | $ | 47,200  |  |  |  | 80,000    | 
|President and General            |  |      | 2001 |        |  |       | 295,439 |              |  |                 | 60,410  |  |  |   | 46,724  |  |  |  | 150,000   | 
|Manager, AOL Mexico              |  |      | Stub | (2)    |  |       | 130,678 |              |  |                 | 73,812  |  |  |   | 23,263  |  |  |  | 375,000   | 
|                                 |  |      | 2000 |        |  |       | 251,304 |              |  |                 | 73,812  |  |  |   | 46,524  |  |  |  |          | 
|Eduardo Hauser                   |  |      | 2002 |        |  | $     | 204,390 |              |  | $               | 98,033  |  |  |   |        |  |  |  | 44,600    | 
|Vice President AOL               |  |      | 2001 |        |  |       | 179,862 |              |  |                 | 29,832  |  |  |   |        |  |  |  | 90,000    | 
|Services and Business            |  |      | Stub | (2)    |  |       | 46,032  |              |  |                 | 53,704  |  |  |   |        |  |  |  | 245,000   | 
|Affairs                          |  |      | 2000 |        |  |       | 88,523  |              |  |                 | 53,704  |  |  |   |        |  |  |  |          | 
|Carlos D. Trostli(5)             |  |      | 2002 |        |  | $     | 275,973 |              |  | $               | 119,239 |  |  | $ | 137,889 |  |  |  | 66,700    | 
|President and General            |  |      | 2001 |        |  |       | 166,673 |              |  |                 | 110,646 |  |  |   | 52,972  |  |  |  | 375,000   | 
|Manager, AOL Brasil              |  |      | Stub | (2)    |  |       |        |              |  |                 |        |  |  |   |        |  |  |  |          | 
|                                 |  |      | 2000 |        |  |       |        |              |  |                 |        |  |  |   |        |  |  |  |          | 
|Javier Aguirre(6)                |  |      | 2002 |        |  | $     | 193,062 |              |  | $               | 117,500 |  |  |   |        |  |  |  | 66,700    | 
|Chief Financial Officer          |  |      | 2001 |        |  |       | 234,798 |              |  |                 | 117,500 |  |  |   | 55,431  |  |  |  | 200,000   | 
|                                 |  |      | Stub | (2)    |  |       | 77,531  |              |  |                 | 29,832  |  |  |   |        |  |  |  | 346,000   | 
|                                 |  |      | 2000 |        |  |       | 150,671 |              |  |                 | 52,970  |  |  |   |        |  |  |  |          | 
|Gustavo Benejam(7)               |  |      | 2002 |        |  | $     | 332,075 |              |  | $               | 166,158 |  |  |   |        |  |  |  | 115,000   | 
|Chief Operating Officer          |  |      | 2001 |        |  |       | 310,596 |              |  |                 | 275,000 |  |  |   |        |  |  |  | 250,000   | 
|                                 |  |      | Stub | (2)    |  |       | 135,064 |              |  |                 | 72,699  |  |  |   |        |  |  |  | 400,000   | 
|                                 |  |      | 2000 |        |  |       | 201,208 |              |  |                 | 125,000 |  |  |   |        |  |  |  |          | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Other annual compensation includes
    Mr. Heringtons automobile allowance ($30,000
    annually) and payment of membership fees ($5,000 annually).                                                                                                                                                                                                                                                                                                                       
|(2) | Stub referes to the period from
    July 1, 2000 through December 31, 2000.                                                                                                                                                                                                                                                                                                                                                                                              
|(3) | Mr. Baños began his employment with us
    in August 2002. His annual bonus compensation in 2002 consisted
    of a signing bonus of $150,000 that was granted under
    Mr. Baños employment agreement and a performance
    bonus of $81,845.                                                                                                                                                                                                                           
|(4) | Other compensation includes medical and life
    insurance (2002: $3,200; 2001: $2,724; 2000: $2,524) and use of
    automobile ($20,000 annually), childrens education
    allowance ($24,000 annually).                                                                                                                                                                                                                                                                 
|(5) | Mr. Trostli began his employment with us on
    May 7, 2001 and ended March 28, 2003. His annual bonus
    compensation includes $89,990 and $56,330 in 2002 and 2001,
    respectively, as signing bonuses. Other compensation includes
    medical and life insurance (2002: $3,006; 2001: $3,764), use of
    automobile ($30,000 annually), childrens education
    allowance (2002: $17, 827; 2001: $9,537) and personal security
    (2002: $87,056; 2001: $11,947).
|(6) | Mr. Aguirres employment with us ended
    in October 2002.                                                                                                                                                                                                                                                                                                                                                                                                                
|(7) | Mr. Benejams employment with us ended
    in September 2002.                                                                                                                                                                                                                                                                                                                                                                                                              

54



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##### Table of Contents



Option Grants in 2002 to Named Executive
Officers

The following table sets forth information with
respect to employee options to purchase shares of class A
common stock awarded during the year ended December 31,
2002 to the named executive officers listed in the summary
compensation table.

Options Granted in 2002 to Named Executive
Officers

|                               |  |                    |         |               |  |                |     |                            |  |                              |      |     |  |  |                |  |  |   |         |  |  |   |         | 
|------------------------------ |  | ------------------ | ------- | ------------- |  | -------------- | --- | -------------------------- |  | ---------------------------- | ---- | --- |  |  | -------------- |  |  | - | ------- |  |  | - | ------- | 
|                               |  |                    |         |               |  |                |     |                            |  |                             
|                               |  | Individual Grants  |         |               |  |                |     |                           
|                               |  |                    |         |               |  |                |     | Potential Realizable Value
|                               |  |                    |         | Percentage of |  |                |     |                            |  | At Assumed Annual Rates of  
|                               |  | Number of          |         | Total Options |  |                |     |                            |  | Stock Price Appreciation For
|                               |  | Securities         |         | Granted to    |  |                |     |                            |  | Option Term(2)              
|                               |  | Underlying         |         | Employees     |  | Exercise Price |     |                            |  |                             
|Name                           |  | Options Granted(1) |         | in 2002       |  | (Per Share)    |     | Expiration Date            |  | 5%                           |      | 10%
|                               |  |                    |         |               |  |                |     |                            |  |                              |      |    
|Herington, Charles M.          |  |                    | 150,000 |               |  |                | 4.7 | %                          |  | $                            | 1.60 |     |  |  | April 26, 2012 |  |  | $ | 150,935 |  |  | $ | 382,498 | 
|Baños, Osvaldo H.              |  |                    | 250,000 |               |  |                | 7.8 |                            |  |                              | 0.26 |     |  |  | August 5, 2012 |  |  |   | 40,878  |  |  |   | 103,593 | 
|Trostli, Carlos Eduardo D.A.   |  |                    | 66,700  |               |  |                | 2.1 |                            |  |                              | 2.12 |     |  |  | April 9, 2012  |  |  |   | 79,280  |  |  |   | 200,912 | 
|Escalante Castillo, Eduardo A. |  |                    | 80,000  |               |  |                | 2.5 |                            |  |                              | 2.12 |     |  |  | April 9, 2012  |  |  |   | 95,089  |  |  |   | 240,974 | 
|Hauser, Eduardo A.             |  |                    | 44,600  |               |  |                | 1.4 |                            |  |                              | 2.12 |     |  |  | April 9, 2012  |  |  |   | 59,463  |  |  |   | 150,692 | 
|Aguirre, Javier                |  |                    | 66,700  |               |  |                | 2.0 |                            |  |                              | 2.12 |     |  |  | April 9, 2012  |  |  |   | 79,280  |  |  |   | 200,912 | 
|Benejam, Gustavo               |  |                    | 115,000 |               |  |                | 3.4 |                            |  |                              | 1.60 |     |  |  | April 26, 2012 |  |  |   | 115,717 |  |  |   | 239,249 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Options are non-qualified stock options and
    generally terminate 60 days following termination of the
    executive officers employment with AOLA or the expiration
    date, whichever occurs earlier. The exercise price of each
    option was equal to the fair market value per share of the class
    A common stock on the grant date. All options vest over a
    four-year period at the rate of 25% per year with the first
    vesting date occurring on January 2, 2003, with the
    exception of the options granted to Mr. Herington, which
    vest over three years.                                                                                                                                                                                                                           
|   
|(2) | Amounts represent hypothetical gains that could
    be achieved for the respective options if exercised at the end
    of the option term. These gains are based on assumed rates of
    stock appreciation of 5% and 10% compounded annually from the
    date the respective options were granted to their expiration
    date. The gains shown are net of the option exercise price, but
    do not include deductions for taxes or other expenses associated
    with the exercise of the option or the sale of the underlying
    shares. The actual gains, if any, on the exercise of stock
    options will depend on the future performance of the
    class A common stock, the option holders continued
    employment throughout the option period, and the date on which
    the options are exercised.

Aggregated Option Exercises in the Last Fiscal
Year and Year End Option Values

The following table summarizes for each of the
named executive officers unexercised options held at
December 31, 2002. None of the named executive officers
held any stock appreciation rights or exercised any stock
options or stock appreciation rights during 2002. The value of
unexercised in-the-money options at year-end is the difference
between the exercise price and the fair market value of the
underlying stock

55



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##### Table of Contents



on December 31, 2002. The closing price of
our class A common stock on the Nasdaq SmallCap Market on that
date was $0.37 per share.


Option Values at December 31, 2002

|                               |  |                        |           |                      |  |             |           |               |  |   |   |  |  |   |        | 
|------------------------------ |  | ---------------------- | --------- | -------------------- |  | ----------- | --------- | ------------- |  | - | - |  |  | - | ------ | 
|                               |  |                        |           |                      |  |            
|                               |  | Number of Securities   |           |                     
|                               |  | Underlying Unexercised |           | Value Of Unexercised
|                               |  | Options                |           | In-the-Money Shares 
|                               |  | at Year End            |           | at Year End(1)      
|                               |  |                        |           |                     
|Name                           |  | Exercisable            |           | Unexercisable        |  | Exercisable |           | Unexercisable
|                               |  |                        |           |                      |  |             |           |              
|Herington, Charles M.          |  |                        | 1,066,668 |                      |  |             | 1,133,332 |               |  | $ | 0 |  |  | $ | 0      | 
|Baños, Osvaldo H.              |  |                        | 0         |                      |  |             | 250,000   |               |  |   | 0 |  |  |   | 27,500 | 
|Trostli, Carlos Eduardo D.A.   |  |                        | 93,750    |                      |  |             | 347,950   |               |  |   | 0 |  |  |   | 0      | 
|Escalante Castillo, Eduardo A. |  |                        | 225,000   |                      |  |             | 380,000   |               |  |   | 0 |  |  |   | 0      | 
|Hauser, Eduardo A.             |  |                        | 145,000   |                      |  |             | 234,600   |               |  |   | 0 |  |  |   | 0      | 
|Aguirre, Javier                |  |                        | 0         |                      |  |             | 0         |               |  |   | 0 |  |  |   | 0      | 
|Benejam, Gustavo               |  |                        | 262,500   |                      |  |             | 502,500   |               |  |   | 0 |  |  |   | 0      | 



---



|    |                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Actual gains, if any, on exercise will depend on
    the value of the class A common stock on the date of sale of any
    shares acquired upon exercise of the option.

Employment Contracts and Termination of
Employment and Change-in-Control Agreements

Charles M.
Herington.Mr. Herington serves
as our president and chief executive officer.
Mr. Heringtons annual base salary from
March 2002 through December 2002 was $431,700. From
March 2001 through February 2002,
Mr. Heringtons annual base salary was $413,000 and
from September 2000 through February 2001 his annual
base salary was $376,160. Mr. Herington is eligible to
receive an annual bonus of up to 130% of his base salary, at the
discretion of our board based on his performance. On
August 7, 2000, Mr. Herington also received an option
to purchase 1,300,000 shares of our class A common stock at
$8.00 per share, its initial public offering price. As of
January 1, 2003, Mr. Herington can purchase all shares
available under this option grant. The board, in its discretion,
may grant other stock options to Mr. Herington based upon
his performance. Mr. Herington also holds options to
purchase AOLTW common stock.

If we terminate Mr. Herington for any reason
other than:



| |   |                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | his willful and material violation of AOLAs
    company policy, which is not cured within 30 days after he
    has received written notice from our board;
|
| |  | his failure to comply with the lawful direction
    of our board;                                                                                          
|
| |  | his commission of a material act of dishonesty or
    fraud; or                                                                                            
|
| |  | his conviction or plea of no contest to a felony,                                                                                                          

Mr. Herington is entitled to receive his
salary for 24 months following termination, as well as a
portion of his annual bonus and options granted to
Mr. Herington before his termination will continue to vest
during the applicable severance payment period.

Javier Aguirre.Mr. Aguirre was our chief financial officer from November
1999 to September 2002. From September 2000 until March 2001,
Mr. Aguirres annual base salary was $170,000. From
March 2001 through December 2001, Mr. Aguirres annual
base salary was $235,000. From January 2002 to September 2002,
Mr. Aguirres annual base salary was $250,000.
Mr. Aguirre was eligible to receive an annual bonus of up
to 50% of his base salary, based on his performance and on the
achievement of specified performance objectives. He was also
eligible to receive options to purchase our class A common
stock. We entered into a separation agreement with
Mr. Aguirre in October 2002. Under his separation
agreement, Mr. Aguirre will receive six months of base
salary, plus his annual bonus for 2002.

56



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##### Table of Contents



Gustavo Benejam.Mr. Benejam was our chief operating officer from April 2000
to September 2002. His annual base salary from September 2000
through March 2001 was $290,000. From March 2001 until December
2001, his annual base salary was $315,000. From January 2002 to
September 2002, Mr. Benejams base annual salary was
$316,000. Mr. Benejam was eligible to receive an annual
bonus of up to 50% of his annual base salary based on
performance objectives. Mr. Benejam was also eligible to
receive options to purchase our class A common stock. Under
the terms of his separation agreement, Mr. Benejam will
receive his salary for 12 months following termination of
employment as well as full payment of his annual bonus for
fiscal 2002.

Osvaldo Baños.Mr. Baños serves as our executive vice president and
chief financial officer. Mr. Baños annual base
salary has been $300,000 since he began his employment in August
2002. Mr. Baños also received a signing bonus of
$150,000. Mr. Baños is eligible to receive an
incentive bonus of up to 50% of his base salary based on his
performance and on the achievement of specified performance
objectives. He is also eligible to receive options to purchase
our class A common stock. As part of his employment
agreement, Mr. Baños received an option grant of
250,000 shares.

Eduardo A. Escalante
Castillo.Mr. Escalante is
president of AOL Mexico. Mr. Escalantes annual salary
from March 2001 to March 2002 was $294,803 and from March 2002
to date is $282,584. This reduction reflects the impact of
recent devaluation in the exchange rate of the Mexican peso
versus the U.S. dollar. Mr. Escalante is eligible to
receive an incentive bonus of up to 60% of his base salary based
on his performance and on the achievement of specified
performance objectives. Mr. Escalante is also eligible to
receive options to purchase shares of our class A common
stock.

Eduardo Hauser.Mr. Hauser is our vice president of AOL services, a
position he has held since January 2001, and vice president of
business affairs, a position he has held since January 2002.
From September 2000 until March 2001, Mr. Hausers
annual base salary was $170,000. From April 2001 through
December 2001, Mr. Hausers annual base salary was
$182,210. From January 2002 to present, Mr. Hausers
annual base salary was $209,541. Mr. Hauser is eligible to
receive an annual bonus of up to 35% of his base salary, based
on his performance and on the achievement of specified
performance objectives. He is also eligible to receive options
to purchase our class A common stock.

Carlos Dan Trostli.Mr. Trostli was president of AOL Brasil.
Mr. Trostlis annual salary was $250,000 since he
began employment in May 2001. Mr. Trostli was eligible to
receive an incentive bonus of up to 60% of his base salary based
on his performance and on the achievement of specified
performance objectives. Mr. Trostli received options to
purchase 375,000 shares of our class A common stock in May
2001 and was also eligible to receive options generally to
purchase shares our class A common stock.






|         |                                                                                           
|-------- | ------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Beneficial Owners and
    Management and Related Stockholder Matters

The following table provides information
regarding the ownership of our class A common stock as of
March 25, 2003 by:



| |   |                                                                                               
| | - | ----------------------------------------------------------------------------------------------
| |  | the named executive officers listed in the
    summary compensation table;                    
|
| |  | each director and nominee for director;                                                       
|
| |  | all current directors and executive officers as a
    group; and                              
|
| |  | each stockholder known by us to own beneficially
    more than 5% of our class A common stock.

For purposes of calculating the number and
percentage of outstanding shares held by each holder named
below, any shares which that holder has the right to acquire
within 60 days of March 25, 2003 are considered to be
outstanding, but shares which may be similarly acquired by other
holders are not considered to be outstanding.

57



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##### Table of Contents



We believe that the stockholders named in this
table have the sole voting and investment power for all shares
of the class A common stock shown to be beneficially owned by
them based on information they have provided to us, with the
following exceptions:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Cisneros Groups shares are owned by
    Aspen Investments LLC and Atlantis Investments LLC, companies
    within the Cisneros Group of Companies. Aspen Investments LLC is
    indirectly beneficially owned by a trust established by Gustavo
    A. Cisneros for the benefit of himself and members of his
    family, and Atlantis Investments LLC is indirectly beneficially
    owned by a trust established by Ricardo J. Cisneros for the
    benefit of himself and members of his family. Aspen Investments
    LLC and Gustavo A. Cisneros disclaim beneficial ownership of the
    shares of AOLA owned by Atlantis Investments LLC or Ricardo J.
    Cisneros. Atlantis Investments LLC and Ricardo J. Cisneros
    disclaim beneficial ownership of the shares of AOLA owned by
    Aspen Investments LLC or Gustavo A. Cisneros.
|
| |  | A total of 216,666 shares originally issued to
    the Cisneros Group consist of shares of series C preferred
    stock held by the children of Gustavo A. Cisneros. These shares
    are subject to a voting agreement allowing Aspen Investments LLC
    to vote the shares. The voting agreement terminates if the
    series C preferred shares are transferred by the children in the
    future or if the shares are converted into shares of our class A
    common stock.                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | A total of 288,888 shares originally issued to
    the Cisneros Group consist of shares of series C preferred
    stock held by the children of Ricardo J. Cisneros. These shares
    are subject to a voting agreement allowing Atlantis Investments
    LLC to vote the shares. The voting agreement terminates if the
    series C preferred shares are transferred by the children
    in the future or if the shares are converted into shares of our
    class A common stock.                                                                                                                                                                                                                                                                                                                                                               
|
| |  | America Onlines shares include 300,000
    shares of class A common stock issuable upon exercise of
    options held by employees of America Online or its parent,
    AOLTW, who are also directors of AOLA. Although such employees
    are the record holders of their respective options, America
    Online and AOLTW hold or share disposition power with respect to
    all of the shares of the class A common stock underlying
    the options.                                                                                                                                                                                                                                                                                                                                                                                          

The address for America Online is 22000 AOL
Way, Dulles, Virginia 20166. The address for AOL Time Warner is
75 Rockefeller Plaza, New York, New York 10019. The address
for the stockholders affiliated with the Cisneros Group is c/o
Finser Corporation, 550 Biltmore Way, Suite 900, Coral
Gables, Florida 33134. The address for Banco Itaú is Rua
Boa Vista 176, São Paulo, Brazil.

58



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##### Table of Contents



|                                                                                    |  |                      |             |          |  |  |       |  
|----------------------------------------------------------------------------------- |  | -------------------- | ----------- | -------- |  |  | ----- | -
|                                                                                    |  |                     
|                                                                                    |  | Shares of           
|                                                                                    |  | Class A Common Stock
|                                                                                    |  | Beneficially Owned  
|                                                                                    |  |                     
|Beneficial Owner                                                                    |  | Number               |             | Percent 
|                                                                                    |  |                      |             |         
|Executive Officers and Directors                                                    |  |                      |             |          |  |  |       |  
|Charles M. Herington                                                                |  |                      | 1,760,000   | (1)      |  |  | 1.29  | %
|Javier Aguirre                                                                      |  |                      |            |          |  |  | 0.00  | %
|Osvaldo Baños                                                                       |  |                      |            |          |  |  | 0.00  | %
|Gustavo Benejam                                                                     |  |                      | 413,250     | (2)      |  |  | 0.30  | %
|Eduardo Escalante                                                                   |  |                      | 376,250     | (3)      |  |  | 0.28  | %
|Eduardo Hauser                                                                      |  |                      | 1,329,213   | (4)      |  |  | 0.79  | %
|Carlos Dan Trostli                                                                  |  |                      | 204,175     | (5)      |  |  | 0.15  | %
|Steven I. Bandel                                                                    |  |                      | 640,593     | (6)      |  |  | 0.47  | %
|Janice Brandt                                                                       |  |                      | 60,000      | (7)      |  |  | 0.04  | %
|Gustavo A. Cisneros                                                                 |  |                      | 57,730,886  | (8)(15)  |  |  | 33.00 | %
|Ricardo J. Cisneros                                                                 |  |                      | 57,803,108  | (9)(15)  |  |  | 33.03 | %
|Michael Lynton                                                                      |  |                      | 60,000      | (7)      |  |  | 0.04  | %
|J. Michael Kelly                                                                    |  |                      | 60,000      | (7)      |  |  | 0.04  | %
|Robert S. OHara, Jr.                                                               |  |                      | 68,000      | (10)     |  |  | 0.05  | %
|Cristina Pieretti                                                                   |  |                      | 457,748     | (11)     |  |  | 0.34  | %
|Joseph A. Ripp                                                                      |  |                      | 60,000      | (7)      |  |  | 0.04  | %
|Gerald Sokol, Jr.                                                                   |  |                      | 60,000      | (7)      |  |  | 0.04  | %
|Vernon E. Jordan, Jr.                                                               |  |                      | 60,000      | (10)     |  |  | 0.04  | %
|William H. Luers                                                                    |  |                      | 62,350      | (10)     |  |  | 0.05  | %
|M. Brian Mulroney                                                                   |  |                      | 60,000      | (10)     |  |  | 0.04  | %
|All current and former executive officers and
    directors as a group  27 persons |  |                      | 121,719,981 |          |  |  | 55.55 | %
|Five Percent Stockholders                                                           |  |                      |             |          |  |  |       |  
|America Online, Inc.                                                                |  |                      | 136,851,706 | (12)(15) |  |  | 59.03 | %
|AOL Time Warner Inc.                                                                |  |                      | 191,867,459 | (13)(15) |  |  | 69.53 | %
|Aspen Investments LLC                                                               |  |                      | 57,730,886  | (8)(15)  |  |  | 33.00 | %
|Atlantis Investments LLC                                                            |  |                      | 57,803,108  | (9)(15)  |  |  | 33.03 | %
|Banco Itaú S.A.                                                                     |  |                      | 35,937,840  | (14)(15) |  |  | 26.59 | %



---



| |     |                                                                                                                                                                                                            
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Consists of options to purchase 1,750,000 shares
    of class A common stock, which are exercisable within
    60 days of March 25, 2003 and 10,000 shares of
    class A common stock.                    
|
| | (2) | Consists of options to purchase 413,250 shares of
    class A common stock, which are exercisable within
    60 days of March 25, 2003.                                                                    
|
| | (3) | Consists of options to purchase 376,250 shares of
    class A common stock, which are exercisable within
    60 days of March 25, 2003.                                                                    
|
| | (4) | Consists of options to purchase 239,900 shares of
    class A common stock, which are exercisable within
    60 days of March 25, 2003 and 830,596 shares of
    class A common stock.                     
|
| | (5) | Consists of options to purchase 204,175 shares of
    class A common stock, which are exercisable within
    60 days of March 25, 2003.                                                                    
|
| | (6) | Consists of options to purchase 60,000 shares of
    class A common stock granted to each of our directors which
    are exercisable as of the date granted and 580,593 shares of
    Class A common stock.

59



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| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (7) | Consists of options to purchase 60,000 shares of
    class A common stock, which are exercisable as of the date
    granted. Under AOLTWs and America Onlines conflicts
    of interests standards, Janice Brandt, J. Michael Kelly,
    Michael Lynton, Joseph A. Ripp and Gerald Sokol, Jr.,
    each a member of our board as well as an employee of AOLTW or
    America Online, must transfer the economic benefit of their
    options to AOLTW or America Online, as applicable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (8) | Consists of the following as of March 25,
    2003: (a) 17,947,646 shares of class A common stock,
    (b) 39,723,240 shares of series C preferred stock,
    which represented approximately one-half of all series C
    preferred stock outstanding as of that date and includes 216,666
    shares owned by the children of Gustavo A. Cisneros as to
    which Aspen Investments LLC has voting power, and
    (c) currently exercisable options to purchase 60,000 shares
    of class A common stock. Shares of series C preferred
    stock are convertible into AOLAs class C common stock
    at any time, on a one share-for-one share basis, and the class C
    common stock is convertible into class A common stock at any
    time, on a one-share-for-one-share basis. Adding all these
    shares, as of March 25, 2003, Gustavo A. Cisneros, either
    directly or through Aspen Investments LLC, beneficially owned a
    total of 57,730,886 shares of class A common stock. 
|
| | (9) | Consists of the following as of March 25,
    2003: (a) 17,947,646 shares of class A common stock,
    (b) 39,795,462 shares of series C preferred stock,
    which represented approximately one-half of all series C
    preferred stock outstanding as of that date and includes 288,888
    shares owned by the children of Ricardo J. Cisneros as to
    which Atlantis Investments LLC has voting power and
    (c) currently exercisable options to purchase 60,000 shares
    of class A common stock. Shares of series C preferred stock are
    convertible into AOLAs class C common stock at any time,
    on a one-share-for-one-share basis, and class C common
    stock is convertible into class A common stock at any time,
    on a one share-for-one share basis. Adding all these shares, as
    of March 25, 2003, Ricardo J. Cisneros, either
    directly or through Atlantis Investments LLC, beneficially owned
    a total of 57,803,108 shares of class A common stock.



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Consists of options to purchase 60,000 shares of
    class A common stock granted to each of our directors,
    which are exercisable as of the date granted and 8,000 shares of
    class A common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    
|(11) | Consists of options to purchase 60,000 shares of
    class A common stock granted to each of our directors,
    which are exercisable as of the date granted, and 397,248 shares
    of class A common stock held by Pallium Operating II,
    LLC, a holding company beneficially owned by Ms. Pieretti
    and her husband. Also includes 500 shares of class A
    common stock held in accounts for which Ms. Pierettis
    husband is a cosignatory. Ms. Pieretti disclaims beneficial
    ownership of these 500 shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    
|(12) | Consists of the following as of March 25,
    2003, (a) 40,169,780 shares of class A common stock
    held by America Online, (b) 79,840,676 shares of
    series B preferred stock, (c) currently exercisable
    options to purchase 300,000 shares of class A common stock
    held by certain directors of AOLA, and (d) 16,541,250
    shares of class A common stock issuable pursuant to a
    warrant held by America Online. Shares of series B
    preferred stock are convertible into AOLAs class B
    common stock at any time, on a one-share-for-one share basis,
    and such class B common stock is convertible into class A common
    stock at any time, on a one-share-for-one share basis. Adding
    all these shares, as of March 25, 2003, America Online
    beneficially owned a total of 136,851,706 shares of class A
    common stock. AOLTW, the parent company of America Online, may
    be deemed jointly to beneficially own all these shares.
|    
|(13) | Consists of the following, as of March 25,
    2003, (a) 40,169,780 shares of class A common stock,
    (b) 79,840,676 shares of series B preferred stock held
    by America Online, (c) currently exercisable options to
    purchase 300,000 shares of class A common stock held by
    certain directors of AOLA, (d) 16,541,250 shares of class
    common stock issuable pursuant to a warrant held by America
    Online, (e) 44,150,110 shares of series B preferred
    stock issuable upon conversion of $160.0 million in
    principal amount in senior convertible notes held by AOL TW, and
    (f) 10,865,643 shares of series B preferred stock held
    by AOLTW. Shares of series B preferred stock are
    convertible into AOLAs class B common stock at any
    time on a one-share-for-one-share basis. Adding all these                                                                                                                                    

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|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | shares, as of March 25, 2003, AOLTW
    beneficially owned a total of 191,867,459 shares of class A
    common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    
|(14) | Consists of class A common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    
|(15) | Under Rule 13d-5(b)(1) promulgated under the
    Exchange Act, to the extent a group is deemed to
    exist by virtue of the following agreements involving America
    Online, AOLTW and the Cisneros Group: stockholders
    agreement, the voting agreement, and the America Online-ODC
    registration rights agreement, America Online and AOLTW may be
    deemed to have beneficial ownership, under Sections 13(d)
    and 13(g) of the Exchange Act, of all of the equity securities
    of AOLA beneficially owned by entities within the Cisneros Group
    and each of Gustavo A. Cisneros and Ricardo J. Cisneros, and
    vice versa. Under Rule 13d-5(b)(1) promulgated under the
    Exchange Act, to the extent a group is deemed to
    exist by virtue of the Banco Itaú registration rights
    agreement, America Online and AOLTW, one the one hand, and the
    entities within the Cisneros Group and Gustavo A. Cisneros and
    Ricardo J. Cisneros, on the other hand, may be deemed to have
    beneficial ownership, for purposes of Sections 13(d) and
    13(g) of the Exchange Act, of all of the equity securities of
    AOLA beneficially owned by Banco Itaú, and vice versa. Each
    of (1) America Online and AOLTW, (2) the entities
    within the Cisneros Group and Gustavo A. Cisneros and
    Ricardo J. Cisneros, and (3) Banco Itaú, respectively,
    disclaims beneficial ownership of any AOLA securities directly
    or indirectly beneficially owned by the other.

Equity Compensation Plan Information

The following table sets forth information as of
the end of our fiscal year ended December 31, 2002 with
respect to compensation plans under which our equity securities
are authorized for issuance. The information is as follows:

|                                                           |  |                         |            |                     |  |                              |      |  |  |  |           | 
|---------------------------------------------------------- |  | ----------------------- | ---------- | ------------------- |  | ---------------------------- | ---- |  |  |  | --------- | 
|                                                           |  |                         |            |                     |  | Number of Securities        
|                                                           |  | Number of Securities to |            | Weighted Average    |  | Remaining Available for     
|                                                           |  | be Issued Upon Exercise |            | Exercise Price of   |  | Future Issuance Under Equity
|Plan Category                                              |  | of Outstanding Options  |            | Outstanding Options |  | Compensation Plans          
|                                                           |  |                         |            |                     |  |                             
|Equity compensation plans approved by stockholders         |  |                         | 11,638,541 |                     |  | $                            | 6.92 |  |  |  | 6,569,792 | 
|Equity compensation plans not approved by
    stockholders |  |                         | 3,435,256  |                     |  |                              | 3.29 |  |  |  | 1,164,744 | 
|Total                                                      |  |                         | 15,073,797 |                     |  |                              | 5.24 |  |  |  | 7,734,536 | 



---



|    |                                        
|--- | ---------------------------------------
|(1) | Consists of the 2000 Stock Option Plan.




Item 13.     Certain
Relationships and Related Transactions

2002 Financing

Note Purchase Agreement with
AOLTW.In order to fund our operating
and cash requirements, on March 8, 2002, we entered into a
note purchase agreement with AOLTW, the parent of America
Online, which is one of our principal stockholders. Under the
note purchase agreement, AOLTW provided us with
$160.0 million in 2002 in exchange for senior convertible
notes of AOLA due in March 2007. The senior convertible notes
bear an annual coupon of 11%, payable quarterly. The initial
conversion price, subject to adjustment, is $3.624 per share (a
premium of 20% to the closing trading price of our class A
common stock of $3.020 on March 8, 2002). The senior
convertible notes are convertible at any time at the option of
the holder, and will be redeemable by us at any time after
18 months, subject to the holders right to convert
the senior convertible notes into preferred stock. In addition,
the senior convertible notes are required to be repaid, at the
option of the holder, in the event of significant asset sales or
if we raise additional debt or equity funds. Interest will be
payable either in cash or preferred stock, at our option. In the
event that interest is paid in shares, the price per share is to
be determined based on the average

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closing price of the class A common stock
for the twenty trading dates prior to the date of payment. On
March 11, 2002, we issued a note to AOLTW for
$17.3 million in principal. Subsequently, we issued
additional notes in the principal amounts of $13.0 million on
April 23, 2002, $15.0 million on May 28, 2002,
$13.0 million on July 10, 2002, $13.0 million on
August 12, 2002, $9.5 million on October 18,
2002, $12.2 million on November 27, 2002 and the
remaining balance of $67.0 million on December 30,
2002.


In the event AOLTW converted the
$160.0 million in senior convertible notes, an additional
44,150,110 shares of series B preferred stock would be
issued to AOLTW, increasing the economic ownership by America
Online and its affiliates in AOLA to 52.4% and their relative
voting strength to 63.6%, also assuming conversion of the
warrant granted to America Online at the date of our initial
public offering and the exercise of options to purchase 300,000
shares of class A common stock issued to certain of our
current directors. At present, it is our intention to pay the
interest on the senior convertible notes through the issuance of
additional shares.

In connection with the issuance and sale of the
senior convertible notes to AOLTW, our stockholders approved
certain amendments to our restated certificate of incorporation
at our annual meeting of stockholders held on July 31,
2002. The amendments relating to the issuance and sale of the
senior convertible notes included (i) clarifying that
permitted transferees may own class B or C common stock and
series B or C preferred stock, (ii) increasing the number
of authorized shares of our capital stock, (iii) modifying
the formula for determining the number of shares of convertible
stock that America Online and its permitted transferees can
transfer to employees without such shares automatically
converting into class A common stock, (iv) modifying the
definition of class B triggering event and class C triggering
event, (v) changing the liquidation preference provisions of our
series B and series C preferred stock, (vi) providing that
declared but unpaid dividends be paid on shares of series B or
series C preferred stock surrendered for conversion into class B
common stock or class C common stock, as applicable, if no
adjustment is made therefor to the applicable conversion ratio
to account for the declared but unpaid dividends,
(vii) changing the redemption date provisions with respect
to series B and series C preferred stock and
(viii) revising certain provisions relating to dividends on
series B and C preferred stock to clarify the intent of the
provisions.

Preferred Stock Conversion Agreement with
America Online and the Cisneros Group

In October 2002, we entered into a preferred
stock conversion agreement with America Online and the Cisneros
Group. Under this agreement, America Online and the Cisneros
Group agreed, subject to certain conditions, to convert shares
of series B and series C convertible preferred stock
into shares of class A common stock. Because the conditions
for conversion under the agreement were not met, no conversion
took place under the agreement. However, in January 2003,
America Online and the Cisneros Group converted a total of
36,169,780 shares of series B and 31,895,292 shares of
series C preferred stock into shares of class A common
stock, respectively, at the request of AOLA. This conversion was
designed to increase the total market capitalization of
AOLAs class A common stock, in order to comply with
the minimum market capitalization requirements of the NASDAQ
SmallCap market. As a result of this conversion, the total
number of shares of class A common stock outstanding
increased to 135,135,137 shares.

To encourage a preferred stock conversion, we
submitted to our stockholders, and our stockholders approved, an
amendment to our restated certificate of incorporation at a
special meeting of stockholders held on December 20, 2002
to reduce (i) the number of shares of series B preferred
stock that America Online, AOLTW, their wholly-owned affiliates
and their employees must own to avoid a class B triggering event
where all of the shares of series B preferred stock would
convert into shares of class A common stock and (ii) the
number of shares of series C preferred stock that the Cisneros
Group, their wholly-owned affiliates, their employees and
members of the Cisneros family must own to avoid a class C
triggering event where all of the shares of series C preferred
stock would convert into shares of class A common stock.

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Stockholders Agreement, as amended, with
America Online and the Cisneros Group

On August 7, 2000, we entered into a
stockholders agreement with America Online and the
Cisneros Group, which contains various provisions that affect
the way in which we operate our business and govern many
important aspects of the relationships among America Online, the
Cisneros Group and us. On March 30, 2001, this agreement
was amended in connection with the equity investment by our
principal stockholders, America Online, the Cisneros Group and
Banco Itaú. On March 8, 2002, this agreement was
further amended in connection with the note purchase agreement
to add AOLTW as party to the stockholders agreement for
limited purposes and to require any subsidiaries of AOLTW that
may hold senior convertible notes in the future to become a
party to the stockholders agreement for limited purposes.

The Registration Rights Agreement, as Amended,
with America Online and the Cisneros Group

On March 30, 2001, we amended our existing
agreement with America Online and the Cisneros Group to provide
them with their respective registration rights for the shares of
class A common stock issuable upon conversion of their
series B and C preferred stock we issued to them, and in
the case of America Online, upon the exercise of the warrant it
holds to purchase 16,541,250 shares of our capital stock. On
March 8, 2002, in connection with the note purchase
agreement, we further amended the existing agreement by adding
AOLTW as a party, requiring subsidiaries of AOLTW that may hold
notes in the future to become a party, and providing
registration rights for shares of class A common stock
issuable upon conversion of the B stock and series B
preferred stock issued upon conversion or as interest on the
senior convertible notes.

The AOL License Agreement

For discussion of the AOL License Agreement, see
Item 1  Business  The AOL
License Agreement, Intellectual Property and Proprietary Rights.
From December 15, 1998 through December 31, 2002, we
did not make any payments to America Online for services
received under the license agreement. We believe that annual
payments for these services will not exceed $60,000 in the
future.

The AOL Services Agreement

We entered into a services agreement with America
Online on August 7, 2000, under which America Online
provides various services to us, including:



| |   |                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------
| |  | localization of AOL software and software updates;                                                                             
|
| |  | development and installation services, including
    requested modifications, enhancements and revisions to
    AOLs software;
|
| |  | host computer services;                                                                                                        
|
| |  | network connections from our services to the
    America Online servers;                                                       
|
| |  | technical support;                                                                                                             
|
| |  | training in areas such as marketing, business
    development, member support, public relations, finance and
    accounting;   
|
| |  | support and maintenance for third-party software
    licensed to us by America Online; and                                     
|
| |  | joint venture assistance.                                                                                                      

We have agreed to compensate America Online for
these services at rates at least as favorable to us as those
charged by America Online to any other party, including joint
venture affiliates, but excluding affiliates that are at least
75% owned by America Online. Based on our managements
experience negotiating similar contracts, as well as its
knowledge of our competitors cost structures, we believe
that

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the terms of the services agreement are at least
as favorable as we could have obtained from an unaffiliated
third party.


For the 2002 fiscal year, we had incurred
expenses totaling approximately $19.3 million payable to
America Online under our services agreement. We anticipate that
payments to America Online for these services will exceed
$60,000 annually in the future, but we are unable to estimate at
this time the amount of the payments. As of December 31,
2002, America Online billed us approximately $3.6 million
over and above amounts we have recorded in our statements of
operations. The difference relates to a portion of items under
dispute, primarily for support services provided by America
Online. We are currently negotiating with America Online
regarding the total amount in dispute and at this point do not
expect to pay this approximately $3.6 million amount. As a
result, this amount is not reflected in our consolidated
statement of operations. In the event we are unable to negotiate
an unfavorable resolution of this dispute, we may recognize an
incremental charge to our future costs of revenue. We are also
currently negotiating the method for calculating amounts due for
2003 under our online services agreement.

The Letter Agreement Regarding Puerto Rico
Subscribers

We entered into a letter agreement with America
Online under which America Online transferred to us the economic
benefit associated with subscribers to the AOL-branded service
in Puerto Rico, and we include these subscribers in our member
totals. For fiscal 2002, we incurred a $2.7 million debt to
America Online under this agreement. We anticipate that payments
to America Online for services provided under the letter
agreement will exceed $60,000 annually. In fiscal 2002, we also
received from America Online $10.8 million for fees
collected by America Online from subscribers to the AOL-branded
service in Puerto Rico, which we recorded as subscription
revenue.

Interactive Services Agreement and Agreement
for Consulting Services with America Online Relating to Latino
Content Area

In 2001, we entered into an interactive services
agreement with America Online under which we created a
mini-channel for America Online that was the exclusive
aggregator of content of interest to Latinos living in the
United States on the US version of the AOL service. This
agreement terminated in February 2003.

During 2002, we received less than $60,000 from
America Online for advertising revenues relating to this
mini-channel.

In February 2003, we entered into a one-year
agreement for consulting services with America Online under
which we provide programming services to America Online related
to this mini-channel. We expect to receive $750,000 over the
one-year term of the contract as consideration for these
programming services. This agreement may be terminated by
America Online after six months. We are also entitled to share
in advertising revenues relating to this mini-channel once
certain minimum thresholds are met. We do not expect to receive
more than $60,000 annually in the future from advertising
revenue sharing.

Advertising Arrangements with America
Online

We have an arrangement with America Online under
which we pay them a commission of 15% as a finders fee for
advertising revenues received from global transactions in which
part of the advertising is on our AOLA country services and
portals. The amount of these payments during fiscal 2002 was
approximately $137,000. In addition, we also have an arrangement
with America Online under which we earn a representation fee of
25% of amounts we sell for advertising on the AOL service in the
U.S. The amount of payments received during fiscal 2002 from
America Online was approximately $171,000. Based on our
managements experience negotiating similar arrangements,
we believe that the terms of these arrangements are at least as
favorable as we could have obtained from an unaffiliated third
party.

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Advertising Agreements with Banco
Itaú

We have entered into a series of advertising
agreements with Banco Itaú under which they advertise on
our AOLA country service in Brazil. The amount of payments
received by us from Banco Itaú during fiscal 2002 was
approximately $876,000.

Network Arrangement with America
Online

We have an arrangement with America Online under
which we receive network capacity from Progress Networks.
America Online is a party to the agreement with Progress
Networks and invoices us for the amount of network capacity we
use. The amount of such payments during fiscal 2002 was $936,000.

Strategic Alliance with Banco
Itaú

For discussion of our agreement with Banco
Itaú, see Item 1  Business 
Strategic Alliance with Banco Itaú.

Advertising and Content Agreement with Turner
Broadcasting System Latin America, Inc., as Amended

Under this agreement, we receive content from
CNN, Cartoon Network and TNT for distribution on our AOLA
country services. During fiscal 2002, we purchased an aggregate
of approximately $560,000 in advertising on various Turner media
properties. In addition, we prepaid $1.4 million for future
advertising services on Turner media properties, which
represented the balance due under our agreement. Services
prepaid under this contract are available for future use.

Relationships with Officers of AOLTW and
America Online

One member of our board appointed by America
Online is also an executive officer of AOLTW, and two members of
our board appointed by America Online are also executive
officers of America Online.



| |   |                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------
| |  | Janice Brandt is a senior advisor to America
    Online;                                                                        
|
| |  | J. Michael Kelly is the chairman and chief
    executive officer of AOL International;                                          
|
| |  | Michael Lynton is the president, international
    and executive vice president of AOLTW and president of AOL
    International;
|
| |  | Gerald Sokol, Jr. is the executive vice
    president, AOL International; and                                                   
|
| |  | Joseph A. Ripp is vice chairman of America Online.                                                                              

Relationships with Officers of the Cisneros
Group

Four of the five members of our board appointed
by the Cisneros Group are also executive officers and directors
of companies within the Cisneros Group.



| |   |                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Gustavo A. Cisneros oversees the management and
    operations of the Cisneros Group and is an executive officer and
    director of many of its constituent companies;                          
|
| |  | Ricardo J. Cisneros is an executive officer and
    director of many of the constituent companies of the Cisneros
    Group;                                                                     
|
| |  | Steven I. Bandel holds several senior management
    positions in companies in the Cisneros Group and has the title
    of president and chief operating officer of the Cisneros Group;
    and  
|
| |  | Cristina Pieretti holds a number of senior
    management positions in companies in the Cisneros Group and has
    the title of executive vice president of operations of the
    Cisneros Group.

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The Registration Rights and Stockholders
Agreement, as amended, with Banco Itaú

On August 11, 2000, we entered into a
registration rights and stockholders agreement with Banco
Itaú. This agreement was subsequently amended on
March 30, 2001, in connection with the equity investment by
America Online, the Cisneros Group and Banco Itaú. The
agreement limits Banco Itaús ability to compete with
us, gives Banco Itaú representation rights on our board and
governs many aspects of Banco Itaús ability to sell
its shares of class A common stock.




Item 14.     Controls
And Procedures

(a) Evaluation of Disclosure Controls and
Procedures:

Within the 90 days prior to the date of this
Annual Report, we carried out an evaluation, under the
supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial
Officer, of the adequacy and effectiveness of the design and
operation of our disclosure controls and procedures pursuant to
Securities Exchange Act Rule 13a-14(c) and 15d-14(c). Based
upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and
procedures were adequate and effective as of the date of their
evaluation in timely alerting them to material information
relating to us (including our consolidated subsidiaries)
required to be included in this Annual Report on Form 10-K.

(b) Changes in Internal Controls:

There were no significant changes in our internal
controls or in other factors that could significantly affect
such internal controls subsequent to the date of the evaluation
described in paragraph (a) above, nor were there any
significant deficiencies or material weaknesses in our internal
controls. As a result, no corrective actions were required or
undertaken.




PART IV




Item 15.     Exhibits,
Financial Statement Schedules and Reports on
Form 8-K

(a)(1) Consolidated Financial
Statements

The following consolidated financial statements
of America Online Latin America, Inc. and the Report of
Independent Certified Public Accountants thereon are included
herein:

|                                                               |  |  |     | 
|-------------------------------------------------------------- |  |  | --- | 
|Report of Independent Certified Public Accountants             |  |  | F-1 | 
|Consolidated Balance Sheets                                    |  |  | F-2 | 
|Consolidated Statements of Operations                          |  |  | F-3 | 
|Consolidated Statements of Changes in
    Stockholders Equity |  |  | F-4 | 
|Consolidated Statements of Cash Flows                          |  |  | F-6 | 
|Notes to Consolidated Financial Statements                     |  |  | F-7 | 

(a)(2) Financial Statement Schedules

All financial statement schedules required by
Item 15(a)(2) have been omitted because they are either
inapplicable or the required information has been included in
our consolidated financial statements and notes thereto.

(a)(3) Exhibits

The following Exhibits are incorporated herein by
reference or are filed with this report as indicated below.
Copies of exhibits will be furnished, upon request, to holders
or beneficial owners of America

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Online Latin America, Inc. class A common
stock as of March 25, 2003, subject to payment in advance
of a fee of 25 cents per page to reimburse America Online
Latin America, Inc. for reproduction costs.


EXHIBIT LIST

|        |         |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------- | ------- | ---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |                       
|Number  |         | Description of Exhibit
|        |         |                       
|        | 3.1@    |                        |  | Fourth Restated Certificate of Incorporation of
    America Online Latin America, Inc. (included as Exhibit 3.1
    to the companys Quarterly Report on Form 10-Q for the
    quarter ended June 30, 2002 (No. 000-31181) and
    incorporated herein by reference).                                                                                                                                                                                                                                                               
|        | 3.1(a)@ |                        |  | Certificate of Amendment of Fourth Restated
    Certificate of Incorporation of America Online Latin America,
    Inc., filed with the Secretary of State of the State of Delaware
    on December 23, 2002 (filed as Exhibit 19 to Amendment
    No. 8 to Schedule 13D of AOL Time Warner Inc. and
    America Online, Inc., with respect to shares of America Online
    Latin America, Inc., filed with the Securities and Exchange
    Commission on January 24, 2003 (No. 005-59485) and
    incorporated herein by reference).
|        | 3.2@    |                        |  | Amended and Restated By-laws of America Online
    Latin America, Inc. (included as Exhibit 3.2 to the
    companys Form 10-Q for the quarter ended
    June 30, 2002 (No. 000-31181) and incorporated herein
    by reference).                                                                                                                                                                                                                                                                                                   
|        | 4.1@    |                        |  | Form of class A common stock certificate
    (included as Exhibit 4.1 to Amendment No. 10 of the
    companys Registration Statement on Form S-1
    (No. 333-95051) and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                        
|        | 10.1@   |                        |  | America Online Latin America, Inc. 2000 Stock
    Plan (included as Exhibit 10.1 to Amendment No. 10 of
    the companys Registration Statement on Form S-1
    (No. 333-95051) and incorporated herein by reference).                                                                                                                                                                                                                                                                                                             
|        | 10.2@+  |                        |  | Strategic Interactive Services and Marketing
    Agreement, dated as of June 12, 2000, by and among America
    Online Latin America, Inc., AOL Brasil Ltda. and Banco Itaú
    S.A. (included as Exhibit 10.13 to Amendment No. 12 of
    the companys Registration Statement on Form S-1
    (No. 333-95051) and incorporated herein by reference).                                                                                                                                                                              
|        | 10.3@   |                        |  | Letter Agreement, dated August 7, 2002,
    amending the Strategic Interactive Services and Marketing
    Agreement among America Online Latin America, Inc., AOL Brasil,
    Ltda. and Banco Itaú, S.A. (included as Exhibit 10.6
    to the companys Quarterly Report on Form 10-Q for the
    quarter ended September 30, 2002 (No. 000-31181) and
    incorporated herein by reference).                                                                                                                                       
|        | 10.4@   |                        |  | Letter Agreement, dated September 6, 2002,
    amending the Strategic Interactive Services and Marketing
    Agreement among America Online Latin America, Inc., AOL Brasil,
    Ltda. and Banco Itaú, S.A. (included as Exhibit 10.7
    to the companys Quarterly Report on Form 10-Q for the
    quarter ended September 30, 2002 (No. 000-31181) and
    incorporated herein by reference).                                                                                                                                    
|        | 10.5@   |                        |  | Letter Agreement, dated November 8, 2002,
    amending the Strategic Interactive Services and Marketing
    Agreement among America Online Latin America, Inc., AOL Brasil,
    Ltda. and Banco Itaú, S.A. (included as Exhibit 10.8
    to the companys Quarterly Report on Form 10-Q for the
    quarter ended September 30, 2002 (No. 000-31181) and
    incorporated herein by reference).                                                                                                                                     
|        | 10.6@+  |                        |  | Stock Subscription Agreement, dated as of
    June 12, 2000, by and among America Online Latin America,
    Inc., Banco Itaú S.A. and Banco Banerj S.A. (included as
    Exhibit 10.14 to Amendment No. 6 of the companys
    Registration Statement on Form S-1 (No. 333-95051) and
    incorporated herein by reference).                                                                                                                                                                                                        
|        | 10.7@   |                        |  | Contribution Agreement, dated as of July 3,
    2000, by and among America Online Latin America, Inc., AOL Latin
    America, S.L., America Online, Inc. and Riverview Media Corp.
    (included as Exhibit 10.19 to Amendment No. 10 of the
    companys Registration Statement on Form S-1 (No.
    333-95051) and incorporated herein by reference).                                                                                                                                                                            

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|        |         |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- | ------- | ---------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |                       
|Number  |         | Description of Exhibit
|        |         |                       
|        | 10.8@   |                        |  | Contribution Agreement by and among America
    Online Latin America, Inc., AOL Latin America, S.L., America
    Online, Inc. and Riverview Media Corp., dated as of
    August 7, 2000 (included as Exhibit 10.3 to Amendment
    No. 11 of the companys Registration Statement on
    Form S-1 (No. 333-95051) and incorporated herein by
    reference).                                                                                                                                                                                                                                                                                                                                                   
|        | 10.9@+  |                        |  | AOL License Agreement, dated as of August 7,
    2000, by and between America Online, Inc. and America Online
    Latin America, Inc. (included as Exhibit 10.5 to Amendment
    No. 11 of the companys Registration Statement on
    Form S-1 (No. 333-95051) and incorporated herein by
    reference).                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 10.10@+ |                        |  | AOL Online Services Agreement, dated as of
    August 7, 2000, by and between America Online, Inc. and
    America Online Latin America, Inc. (included as
    Exhibit 10.6 to Amendment No. 11 of the companys
    Registration Statement on Form S-1 (No. 333-95051) and
    incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                                             
|        | 10.11@  |                        |  | Amended and Restated Warrant issued by America
    Online Latin America, Inc. to America Online, Inc., dated as of
    August 7, 2000 (included as Exhibit 10.7 to Amendment
    No. 2 of the companys Registration Statement on
    Form S-1 (No. 333-95051) and incorporated herein by
    reference).                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 10.12@  |                        |  | Form of Escrow Agreement, dated as of
    August 7, 2000, by and among The Bank of New York, America
    Online Latin America, Inc., AOL Brasil Ltda. and Banco Itaú
    S.A. (included as Exhibit 10.16 to Amendment No. 6 of
    the companys Registration Statement on Form S-1
    (No. 333-95051) and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                 
|        | 10.13@+ |                        |  | Second Amended and Restated Stockholders
    Agreement, dated as of March 8, 2002, by and among America
    Online Latin America, Inc., America Online, Inc., Aspen
    Investments LLC, Atlantis Investments LLC and for purposes of
    certain sections thereof AOL Time Warner Inc. (included as
    Exhibit 10.2 to the companys Annual Report on
    Form 10-K for the year ended December 31, 2001
    (No. 000-31181) and incorporated herein by reference).                                                                                                                                                                                                                                         
|        | 10.14@  |                        |  | Second Amended Registration Rights Agreement,
    dated as of March 8, 2002, by and among America Online
    Latin America, Inc., America Online, Inc., AOL Time Warner Inc.,
    Aspen Investments LLC and Atlantis Investments LLC (included as
    Exhibit 10.4 to the companys Annual Report on
    Form 10-K for the year ended December 31, 2001
    (No. 000-31181) and incorporated herein by reference).                                                                                                                                                                                                                                                                                             
|        | 10.15@  |                        |  | Amended and Restated Registration Rights and
    Stockholders Agreement, dated as of March 30, 2001,
    by and among America Online Latin America, Inc., Banco
    Itaú, S.A., Banco Banerj, S.A., Banco Itaú,
    S.A.-Cayman Branch, Itaú Bank Limited and for purposes of
    certain sections thereof, America Online, Inc., Atlantis
    Investments LLC and Aspen Investments LLC (filed as
    Exhibit 2 to Amendment No. 3 to Schedule 13D of
    AOL Time Warner Inc. and America Online, Inc., with respect to
    shares of America Online Latin America, Inc., filed with the
    Securities and Exchange Commission on April 13, 2001
    (No. 005-59485) and incorporated herein by reference).
|        | 10.16@  |                        |  | Amendment, dated as of May 20, 2002, to the
    Voting Agreement, dated as of March 8, 2002, by and among
    AOL Time Warner Inc., America Online, Inc., Aspen Investments
    LLC and Atlantis Investments LLC (included as Exhibit 15 to
    Amendment No. 6 to Schedule 13D of AOL Time Warner
    Inc. and America Online, Inc., with respect to securities of
    America Online Latin America, Inc., filed with the Securities
    and Exchange Commission on August 29, 2002
    (No. 005-59485) and incorporated herein by reference).                                                                                                                                                                
|        | 10.17@  |                        |  | Amendment, dated as of May 20, 2002, to the
    Voting Agreement, dated as of March 8, 2002, by and among
    AOL Time Warner Inc., America Online, Inc., Banco Itau, S.A.,
    Banco Banerj, S.A., Banco Itau, S.A.-Cayman Branch, and Itau
    Bank Limited (included as Exhibit 16 to Amendment
    No. 6 to Schedule 13D of AOL Time Warner Inc. and
    America Online, Inc. with respect to securities of America
    Online Latin America, Inc., filed with the Securities and
    Exchange Commission on August 29, 2002 (No. 005-59485)
    and incorporated herein by reference).                                                                                                                    

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|        |          |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                  
|------- | -------- | ---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |          |                       
|Number  |          | Description of Exhibit
|        |          |                       
|        | 10.18@   |                        |  | Exclusivity and Key Partner Contracts Agreement,
    dated July 31, 2002, by and among America Online Latin
    America, Inc., America Online, Inc., Aspen Investments LLC and
    Atlantis Investments LLC (included as Exhibit 10.10 to the
    companys Quarterly Report on Form 10-Q for the
    quarter ended September 30, 2002 (No. 000-31181) and
    incorporated herein by reference).
|        | 10.19@   |                        |  | Amendment of Memorandum of Agreement, dated
    September 24, 2002, between America Online Latin America,
    Inc. and Turner Broadcasting System Latin America, Inc.
    (included as Exhibit 10.11 to the companys Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 2002 (No. 000-31181) and incorporated
    herein by reference).                                  
|        | 10.20@   |                        |  | Preferred Stock Conversion Agreement, dated
    October 7, 2002, by and among America Online Latin America,
    Inc., America Online, Inc., Aspen Investments LLC and Atlantis
    Investments LLC (included as Exhibit 99.2 to the
    companys Current Report on Form 8-K filed on
    October 7, 2002 (No. 000-31181) and incorporated
    herein by reference).                             
|        | 10.21@   |                        |  | Agreement for Consulting Services, dated
    October 12, 2002, between America Online Latin America,
    Inc. and Javier Aguirre (included as Exhibit 10.3 to the
    companys Quarterly Report on Form 10-Q for the
    quarter ended September 30, 2002 (No. 000-31181) and
    incorporated herein by reference).                                                                            
|        | 10.22*+  |                        |  | Agreement for Telecommunications Services and
    Other Agreements, dated March 7, 2002, between AOL Brasil
    Ltda. and Telefonica Empresas S.A.                                                                                                                                                                                                                                               
|        | 10.23@+  |                        |  | Memorandum of Agreement, dated as of
    December 14, 2002, by and among America Online Latin
    America, Inc., AOL Brasil Ltda. and Banco Itaú S.A.
    (included as Exhibit 10.1 to the companys Current
    Report on Form 8-K filed as of December 18, 2002
    (No. 000-31181) and incorporated herein by reference).                                                                     
|        | 10.24*+  |                        |  | Business Cooperation Agreement, dated
    January 9, 2003, between McDonalds Comercio de
    Alimentos Ltda. and AOL Brasil Ltda.                                                                                                                                                                                                                                                               
|        | 10.25@#  |                        |  | Letter of Employment for Gustavo Benejam, dated
    February 25, 2000 (included as Exhibit 10.21 to
    Amendment No. 10 of the companys Registration
    Statement on Form S-1 (No. 333-95051) and incorporated
    herein by reference).                                                                                                                                                      
|        | 10.26@#  |                        |  | Letter of Employment for Javier Aguirre, dated
    February 22, 2000 (included as Exhibit 10.20 to
    Amendment No. 10 of the companys Registration
    Statement on Form S-1 (No. 333-95051) and incorporated
    herein by reference).                                                                                                                                                       
|        | 10.27@#  |                        |  | Letter of Employment for Eduardo Hauser, dated
    February 22, 2000 (included as Exhibit 10.23 to
    Amendment No. 10 of the companys Registration
    Statement on Form S-1 (No. 333-95051) and incorporated
    herein by reference).                                                                                                                                                       
|        | 10.28@#  |                        |  | Letter of Employment for Charles M. Herington,
    dated July 31, 2000 (included as Exhibit 10.8 to
    Amendment No. 10 of the companys Registration
    Statement on Form S-1 (No. 333-95051) and incorporated
    herein by reference).                                                                                                                                                      
|        | 10.29@#  |                        |  | Amendment to Letter of Employment for Charles M.
    Herington, dated December 15, 2000 (included as
    Exhibit 10.9 to the companys Transition Report on
    Form 10-K for the transition period from July 1, 2000
    to December 31, 2000 (No. 000-31181) and incorporated
    herein by reference).                                                                                        
|        | 10.30@#+ |                        |  | Separation Agreement and Release of Claims, dated
    May 31, 2002, between America Online Latin America, Inc.
    and Eric Hoyt (included as Exhibit 10.5 to the companys
    Form 10-Q for the quarter ended June 30, 2002
    (No. 000-31181)and incorporated herein by reference).                                                                                                          
|        | 10.31@#  |                        |  | Letter of Employment, dated June 17, 2002,
    between America Online Latin America, Inc. and Gustavo Rubio
    (included as Exhibit 10.5 to the companys Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 2002 (No. 000-31181) and incorporated
    herein by reference).                                                                                             
|        | 10.32@#  |                        |  | Letter of Employment, dated July 26, 2002,
    between America Online Latin America, Inc. and Osvaldo
    Baños (included as Exhibit 10.4 to the companys
    Quarterly Report on Form 10-Q for the quarter ended
    September 30, 2002 (No. 000-31181) and incorporated
    herein by reference).                                                                                             

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|        |         |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------- | ------- | ---------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |                       
|Number  |         | Description of Exhibit
|        |         |                       
|        | 10.33@# |                        |  | Separation Agreement and Release of Claims, dated
    July 26, 2002, between America Online Latin America, Inc.
    and Javier Aguirre (included as Exhibit 10.2 to the
    companys Quarterly Report on Form 10-Q for the
    quarter ended September 30, 2002 (No. 000-31181) and
    incorporated herein by reference).                                                                                                                                                                                                                         
|        | 10.34@# |                        |  | Separation Agreement and Release of Claims, dated
    August 31, 2002, between America Online Latin America, Inc.
    and Gustavo Benejam (included as Exhibit 10.1 to the
    companys Quarterly Report on Form 10-Q for the
    quarter ended September 30, 2002 (No. 000-31181) and
    incorporated herein by reference).                                                                                                                                                                                                                      
|        | 10.35@  |                        |  | Stock Purchase Agreement, dated as of
    March 30, 2001, by and among America Online Latin America,
    Inc., America Online, Inc., Aspen Investments LLC, Atlantis
    Investments LLC and Banco Itaú., S.A. -Cayman Branch (filed
    as Exhibit 8 to Amendment No. 3 to Schedule 13D
    of AOL Time Warner Inc., and America Online, Inc., with respect
    to shares in America Online Latin America, Inc., filed with the
    Securities and Exchange Commission on April 13, 2001
    (No. 005-59485) and incorporated herein by reference).
|        | 10.36@  |                        |  | Agreement, dated as of March 30, 2001, by
    and among America Online Latin America, Inc., Banco Itaú,
    S.A., Banco Banerj, S.A., Banco Itaú, S.A. 
    Cayman Branch and Itaú Bank Limited (filed as exhibit 10 to
    Amendment No. 3 to Schedule 13D of Banco Itaú,
    S.A., Itaúsa-Investimentos Itaú, S.A., Companhia ESA
    and the shareholders of Companhia ESA, filed with the Securities
    and Exchange Commission on April 12, 2001
    (No. 005-59485) and incorporated herein by reference).                                  
|        | 10.37@  |                        |  | Agreement, dated as of March 30, 2001, by
    and among America Online Latin America, Inc., Compuserve
    Interactive Services, Inc. and America Online, Inc. (included as
    Exhibit 10.7 to the companys Quarterly Report on
    Form 10-Q for the quarter ended March 31, 2001
    (No. 003-31181) and incorporated herein by reference).                                                                                                                                                                                                     
|        | 10.38@  |                        |  | Amendment No. 1 to the Note Purchase
    Agreement, dated as of May 20, 2002, between AOL Time
    Warner Inc. and America Online Latin America, Inc. (included as
    Exhibit 14 to Amendment No. 6 to Schedule 13D of
    AOL Time Warner Inc. and America Online, Inc., with respect to
    securities of America Online Latin America, Inc., filed with the
    Securities and Exchange Commission on August 29, 2002
    (No. 005-59485) and incorporated herein by reference).                                                                
|        | 10.39@+ |                        |  | Agreement by and between Embratel and AOL Brasil
    Ltda., dated as of October 18, 1999 (included as
    Exhibit 10.10 to Amendment No. 11 of the
    companys Registration Statement on Form S-1
    (No. 333-95051) and incorporated herein by reference).                                                                                                                                                                                                                                                                                      
|        | 10.40@+ |                        |  | Form of Amendment to Agreement by and between
    Embratel and AOL Brasil Ltda., dated as of October 18, 1999
    (included as Exhibit 10.12 to Amendment No. 11 of the
    companys Registration Statement on Form S-1
    (No. 333-95051) and incorporated herein by reference).                                                                                                                                                                                                                                                                 
|        | 10.41@+ |                        |  | Amendment No. 2 to Agreement by and between
    Embratel and AOL Brasil Ltda., dated as of September 29,
    2000 (included as Exhibit 10.27 of the companys
    Annual Report on Form 10-K for the year ended
    December 31, 2001 (No. 000-31181) and incorporated
    herein by reference).                                                                                                                                                                                                                                                    
|        | 10.42@+ |                        |  | Amendment No. 3 to Agreement by and between
    Embratel and AOL Brasil Ltda., dated as of December 27,
    2000 (included as Exhibit 10.28 of the companys
    Annual Report on Form 10-K for the year ended
    December 31, 2001 (No. 000-31181) and incorporated
    herein by reference).                                                                                                                                                                                                                                                     
|        | 10.43@+ |                        |  | Amendment No. 4 to Agreement by and between
    Embratel and AOL Brasil Ltda., dated as of April 25, 2001
    (included as Exhibit 10.29 of the companys Annual
    Report on Form 10-K for the year ended December 31,
    2001 (No. 000-31181) and incorporated herein by reference).                                                                                                                                                                                                                                                            
|        | 10.44@+ |                        |  | Amendment No. 5 to Agreement by and between
    Embratel and AOL Brasil Ltda., dated as of July 4, 2001
    (included as Exhibit 10.30 of the companys Annual
    Report on Form 10-K for the year ended December 31,
    2001 (No. 000-31181) and incorporated herein by reference).                                                                                                                                                                                                                                                              
|        | 10.45@+ |                        |  | Amendment No. 6 to the Agreement by and
    between Embratel and AOL Brasil Ltda., dated as of July 31,
    2001 (included as Exhibit 10.31 of the companys
    Annual Report on Form 10-K for the year ended
    December 31, 2001 (No. 000-31181) and incorporated
    herein by reference).                                                                                                                                                                                                                                                     

70



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|        |         |                        |  |                                                                                                                                                                                                                                                                                                                   
|------- | ------- | ---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |                       
|Number  |         | Description of Exhibit
|        |         |                       
|        | 10.46@+ |                        |  | Amendment No. 7 to Agreement by and between
    Embratel and AOL Brasil Ltda. (included as Exhibit 10.1 to
    the companys Quarterly Report on Form 10-Q for the
    quarter ended June 30, 2001 (No. 000-31181) and
    incorporated herein by reference).                                                     
|        | 10.47@+ |                        |  | Amendment No. 8 to the Agreement by and
    between Embratel and AOL Brasil Ltda., dated as of
    November 1, 2001 (included as Exhibit 10.32 of the
    companys Annual Report on Form 10-K for the year
    ended December 31, 2001 (No. 000-31181) and
    incorporated herein by reference).                
|        | 10.48@+ |                        |  | Amendment No. 9 to Agreement by and between
    Embratel and AOL Brasil Ltda. (included as Exhibit 10.2 to
    the companys Quarterly Report on Form 10-Q for the
    quarter ended June 30, 2001 (No. 000-31181) and
    incorporated herein by reference).                                                     
|        | 10.49@+ |                        |  | Amendment No. 10 to Agreement by and between
    Embratel and AOL Brasil Ltda. (included as Exhibit 10.3 to
    the companys Quarterly Report on Form 10-Q for the
    quarter ended June 30, 2001 (No. 000-31181) and
    incorporated herein by reference).                                                    
|        | 10.50@+ |                        |  | Amendment No. 11 to Agreement by and between
    Embratel and AOL Brasil Ltda. (included as Exhibit 10.4 to
    the companys Quarterly Report on Form 10-Q for the
    quarter ended June 30, 2001 (No. 000-31181) and
    incorporated herein by reference).                                                    
|        | 10.51*+ |                        |  | Amendment No. 12 to Agreement by and between
    Embratel and AOL Brasil Ltda., dated November 1, 2002.                                                                                                                                                                                                           
|        | 10.52@+ |                        |  | Agreement by and between Avantel, S.A. and AOL
    Mexico, S. de R.L. de C.V., dated as of January 20, 2000
    (included as Exhibit 10.17 to Amendment No. 12 of the
    companys Registration Statement on Form S-1
    (No. 333-95051) and incorporated herein by reference).                                 
|        | 10.53@+ |                        |  | Addendum and Letter Agreement by and between AOL
    Mexico, S. de R.L. de C.V. and Avantel, S.A., dated as of
    October 31, 2001 (included as Exhibit 10.33 of the
    companys Annual Report on Form 10-K for the year
    ended December 31, 2001 (No. 000-31181) and
    incorporated herein by reference).
|        | 10.54*  |                        |  | Agreement, dated December 13, 2002, by and
    between Avantel, S.A. and AOL Mexico, S. de R.L. de C.V.                                                                                                                                                                                                           
|        | 10.55*+ |                        |  | Letter Agreement, dated December 13, 2002,
    between Avantel, S.A. and AOL Mexico, S. de R.L. de C.V.                                                                                                                                                                                                           
|        | 10.56@  |                        |  | Note Purchase Agreement, dated as of
    March 8, 2002, by and between America Online Latin America,
    Inc. and AOL Time Warner Inc. (included as Exhibit 99.2 to
    the companys Current Report on Form 8-K filed on
    March 11, 2002 (No. 000-31181) and incorporated herein
    by reference).           
|        | 10.57@  |                        |  | Form of Initial Note (included as
    Exhibit 10.35 to the companys Annual Report on
    Form 10-K for the year ended December 31, 2001
    (No. 000-31181) and incorporated herein by reference).                                                                                                               
|        | 10.58*  |                        |  | Agreement for Consulting Services, dated
    February 22, 2003, by and between America Online Latin
    America, Inc. and America Online, Inc.                                                                                                                                                                    
|        | 21.1*   |                        |  | Subsidiaries of America Online Latin America, Inc.                                                                                                                                                                                                                                                                
|        | 23.1*   |                        |  | Consent of Ernst & Young LLP, Independent
    Certified Public Accountants.                                                                                                                                                                                                                                       
|        | 99.1*   |                        |  | Certifications pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                      
|        | 99.2*   |                        |  | Certification of Chief Executive Officer pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                            
|        | 99.3*   |                        |  | Certification of Chief Financial Officer pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                            



---



|  |                                        
|- | ---------------------------------------
|@ | Incorporated by reference as indicated.



| |   |                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | + | Confidential treatment has been requested for
    portions of this exhibit. These portions have been omitted and
    filed separately with the Securities and Exchange Commission.



| |   |                
| | - | ---------------
| | * | Filed herewith.



|  |                                                               
|- | --------------------------------------------------------------
|# | # Management contract, or compensatory plan or
    arrangement

71



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##### Table of Contents



(b) Reports on Form 8-K

On October 7, 2002, we filed a Current
Report on Form 8-K disclosing in Items 7 and 9
(i) the issuance of a press release on October 7,
2002, entitled AOL Latin America Presents Plan To Raise
Market Capitalization For Continued Listing On NASDAQ, and
(ii) the execution of the Preferred Stock Conversion
Agreement, by and among the company, America Online, Inc., Aspen
Investments LLC and Atlantis Investments LLC, dated as of
October 3, 2002.

On November 14, 2002, we filed a Current
Report on Form 8-K disclosing in Items 7 and 9 that on
November 14, 2002, Charles M. Herington, President and
Chief Executive Officer of the company and Osvaldo Baños,
Chief Financial Officer and Executive Vice President of the
company, each executed the certifications required by
Section 906 of the Sarbanes-Oxley Act of 2002 in connection
with our Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2002.

On December 18, 2002, we filed a Current
Report on Form 8-K disclosing in Items 5 and 7
(i) the issuance of a press release on December 18,
2002, entitled America Online Latin America And Banco
Itaú Reaffirm Strategic Partnership, and
(ii) the execution of a Memorandum of Agreement by and
among the company, AOL Brasil Ltda. and Banco Itaú S.A.,
dated as of December 14, 2002.

72



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##### Table of Contents



SIGNATURES

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



| |                                   
| | ----------------------------------
| | AMERICA ONLINE LATIN AMERICA, INC.



| |     |                         
| | --- | ------------------------
| | By: | /s/ CHARLES M. HERINGTON

| |                        
| | -----------------------
| |                        
| | Charles M. Herington   
| | Chief Executive Officer

Date: March 31, 2003

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.

|                                               |  |                                                             |  |      |                |  |  | 
|---------------------------------------------- |  | ----------------------------------------------------------- |  | ---- | -------------- |  |  | 
|                                               |  |                                                             |  |     
|Signature                                      |  | Title                                                       |  | Date
|                                               |  |                                                             |  |     
|                                              
|/s/ CHARLES M. HERINGTONCharles M. Herington   |  | Chief Executive Officer (principal executive
    officer)   |  |      | March 31, 2003 | 
|                                              
|/s/ OSVALDO BAÑOSOsvaldo Baños                 |  | Chief Financial Officer (principal financial
    officer)   |  |      | March 31, 2003 | 
|                                              
|/s/ MILTON P. BRICEMilton P. Brice             |  | Treasurer and Controller (principal accounting
    officer) |  |      | March 31, 2003 | 
|                                              
|/s/ STEVEN I. BANDELSteven I. Bandel           |  | Director                                                    |  |      | March 31, 2003 | 
|                                              
|Janice Brandt                                  |  | Director                                                    |  |      | March 31, 2003 | 
|                                              
|/s/ GUSTAVO A. CISNEROSGustavo A. Cisneros     |  | Director                                                    |  |      | March 31, 2003 | 
|                                              
|/s/ RICARDO J. CISNEROSRicardo J. Cisneros     |  | Director                                                    |  |      | March 31, 2003 | 
|                                              
|/s/ J. MICHAEL KELLYJ. Michael Kelly           |  | Director                                                    |  |      | March 31, 2003 | 
|                                              
|/s/ MICHAEL LYNTONMichael Lynton               |  | Director                                                    |  |      | March 31, 2003 | 
|                                              
|/s/ ROBERT S. OHARA, JR.Robert S. OHara, Jr. |  | Director                                                    |  |      | March 31, 2003 | 

73



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|                                               |  |          |  |      |                |  |  | 
|---------------------------------------------- |  | -------- |  | ---- | -------------- |  |  | 
|                                               |  |          |  |     
|Signature                                      |  | Title    |  | Date
|                                               |  |          |  |     
|                                              
|/s/ CRISTINA PIERETTICristina Pieretti         |  | Director |  |      | March 31, 2003 | 
|                                              
|/s/ JOSEPH A. RIPPJoseph A. Ripp               |  | Director |  |      | March 31, 2003 | 
|                                              
|/s/ GERALD SOKOL, JR.Gerald Sokol, Jr.         |  | Director |  |      | March 31, 2003 | 
|                                              
|/s/ VERNON E. JORDAN, JR.Vernon E. Jordan, Jr. |  | Director |  |      | March 31, 2003 | 
|                                              
|/s/ WILLIAM H. LUERSWilliam H. Luers           |  | Director |  |      | March 31, 2003 | 
|                                              
|/s/ M. BRIAN MULRONEYM. Brian Mulroney         |  | Director |  |      | March 24, 2003 | 

74



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##### Table of Contents






REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors and Stockholders

America Online Latin America, Inc.


We have audited the accompanying consolidated
balance sheets of America Online Latin America, Inc. as of
December 31, 2002 and 2001, and the related consolidated
statements of operations, changes in stockholders equity
(capital deficiency), and cash flows for the years ended
December 31, 2002 and 2001, the six-month period ended
December 31, 2000, and the year ended June 30, 2000.
These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of America Online Latin America,
Inc. at December 31, 2002 and 2001, and the consolidated
results of its operations and its cash flows for the years ended
December 31, 2002 and 2001, the six-month period ended
December 31, 2000, and the year ended June 30, 2000,
in conformity with accounting principles generally accepted in
the United States.



| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP

Ft. Lauderdale, Florida

February 3, 2003, except for the last
paragraph of Note 12,


as to which the date is February 17, 2003


F-1



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##### Table of Contents



AMERICA ONLINE LATIN AMERICA, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

|                                                                                    |                                                                                                                                         |                                                                                                                              |                                                                     |              |       |         |          |     |       |        | 
|----------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | ------------ | ----- | ------- | -------- | --- | ----- | ------ | 
|                                                                                    |                                                                                                                                         |                                                                                                                             
|                                                                                    |                                                                                                                                         | As of                                                                                                                       
|                                                                                    |                                                                                                                                         |                                                                                                                             
|                                                                                    |                                                                                                                                         | December 31,                                                                                                                 |                                                                     | December 31,
|                                                                                    |                                                                                                                                         | 2002                                                                                                                         |                                                                     | 2001        
|                                                                                    |                                                                                                                                         |                                                                                                                              |                                                                     |             
|ASSETS                                                                              |                                                                                                                                         |                                                                                                                              |                                                                     |              |       |         |          |    
|Current Assets                                                                      |                                                                                                                                         |                                                                                                                              |                                                                     |              |       |         |          |    
|Cash                                                                                |                                                                                                                                         | $                                                                                                                            | 74,586                                                              |              |       | $       | 45,636   |    
|Short-term money market investments                                                 |                                                                                                                                         |                                                                                                                              | 915                                                                 |              |       |         | 1,040    |    
|                                                                                    |                                                                                                                                         |                                                                                                                              |                                                                     |              |       |         |          |    
|                                                                                    |                                                                                                                                         |                                                                                                                              | Total cash and cash equivalents                                     |              |       | 75,501  |          |     |       | 46,676 | 
|Trade accounts receivable, less allowances of
    $709 (December 31, 2001  $1,979) |                                                                                                                                         |                                                                                                                              | 3,567                                                               |              |       |         | 6,144    |    
|Other receivables                                                                   |                                                                                                                                         |                                                                                                                              | 2,090                                                               |              |       |         | 4,713    |    
|Prepaid expenses and other current assets                                           |                                                                                                                                         |                                                                                                                              | 7,963                                                               |              |       |         | 5,410    |    
|                                                                                    |                                                                                                                                         |                                                                                                                              |                                                                     |              |       |         |          |    
|                                                                                    |                                                                                                                                         |                                                                                                                              | Total current assets                                                |              |       | 89,121  |          |     |       | 62,943 | 
|Property and equipment, net                                                         |                                                                                                                                         |                                                                                                                              | 6,983                                                               |              |       |         | 11,958   |    
|Investments, including securities
    available-for-sale (at fair value)            |                                                                                                                                         |                                                                                                                              | 158                                                                 |              |       |         | 1,361    |    
|Product development and other intangible assets,
    net                            |                                                                                                                                         |                                                                                                                              | 285                                                                 |              |       |         | 988      |    
|Other assets                                                                        |                                                                                                                                         |                                                                                                                              | 3,727                                                               |              |       |         | 7,134    |    
|                                                                                    |                                                                                                                                         |                                                                                                                              |                                                                     |              |       |         |          |    
|                                                                                    |                                                                                                                                         |                                                                                                                              | Total assets                                                        |              | $     | 100,274 |          |     | $     | 84,384 | 
|                                                                                    |                                                                                                                                         |                                                                                                                              |                                                                     |              |       |         |          |    
|LIABILITIES AND STOCKHOLDERS EQUITY
    (CAPITAL DEFICIENCY)                       |                                                                                                                                         |                                                                                                                              |                                                                     |              |       |         |          |    
|Current liabilities                                                                 |                                                                                                                                         |                                                                                                                              |                                                                     |              |       |         |          |    
|Trade accounts payable                                                              |                                                                                                                                         | $                                                                                                                            | 8,746                                                               |              |       | $       | 18,114   |    
|Payables to affiliates                                                              |                                                                                                                                         |                                                                                                                              | 6,893                                                               |              |       |         | 15,198   |    
|Other accrued expenses and liabilities                                              |                                                                                                                                         |                                                                                                                              | 7,369                                                               |              |       |         | 14,570   |    
|Deferred revenue                                                                    |                                                                                                                                         |                                                                                                                              | 5,019                                                               |              |       |         | 3,656    |    
|Accrued personnel costs                                                             |                                                                                                                                         |                                                                                                                              | 6,462                                                               |              |       |         | 9,004    |    
|Other taxes payable                                                                 |                                                                                                                                         |                                                                                                                              | 1,631                                                               |              |       |         | 1,595    |    
|                                                                                    |                                                                                                                                         |                                                                                                                              |                                                                     |              |       |         |          |    
|                                                                                    |                                                                                                                                         |                                                                                                                              | Total current liabilities                                           |              |       | 36,120  |          |     |       | 62,137 | 
|Deferred revenue                                                                    |                                                                                                                                         |                                                                                                                              |                                                                    |              |       |         | 692      |    
|Other non-current liabilities                                                       |                                                                                                                                         |                                                                                                                              | 1,240                                                               |              |       |         | 432      |    
|Senior convertible notes                                                            |                                                                                                                                         |                                                                                                                              | 160,000                                                             |              |       |         |         |    
|                                                                                    |                                                                                                                                         |                                                                                                                              |                                                                     |              |       |         |          |    
|                                                                                    |                                                                                                                                         |                                                                                                                              | total liabilities                                                   |              |       | 197,360 |          |     |       | 63,261 | 
|Commitments and contingencies                                                       |                                                                                                                                         |                                                                                                                              |                                                                     |              |       |         |          |    
|Stockholders equity (capital
    deficiency)                                       |                                                                                                                                         |                                                                                                                              |                                                                     |              |       |         |          |    
|Preferred stock, $.01 par value; 1,000,000,000
    shares authorized:               |                                                                                                                                         |                                                                                                                              |                                                                     |              |       |         |          |    
|                                                                                    | Series B and C cumulative redeemable
    convertible, 350,000,000 shares of series B and 300,000,000
    shares of series C authorized: |                                                                                                                              |                                                                     |              |       |         |          |     |      
|                                                                                    |                                                                                                                                         | Series B  $367,162 liquidation
    value; issued and outstanding shares  126,876,099
    (December 31, 2001  116,010,456) |                                                                     |              | 1,269 |         |          |     | 1,160 |       
|                                                                                    |                                                                                                                                         | Series C  $324,092 liquidation
    value, issued and outstanding shares  111,413,994
    (December 31, 2001  111,413,994) |                                                                     |              | 1,114 |         |          |     | 1,114 |       
|                                                                                    | Reserved for future issuance 
    350,000,000 shares; none issued and outstanding                                                      |                                                                                                                              |                                                                     |             |       |         |          |    |      
|                                                                                    |                                                                                                                                         |                                                                                                                              |                                                                     |              |       |         |          |    
|                                                                                    |                                                                                                                                         |                                                                                                                              | 2,383                                                               |              |       |         | 2,274    |    
|Common stock, $.01 par value; 1,750,000,000
    shares authorized:                  |                                                                                                                                         |                                                                                                                              |                                                                     |              |       |         |          |    
|                                                                                    | Class A  1,400,000,000 shares
    authorized, issued and outstanding shares  67,070,065
    (December 31, 2001  67,054,714)          |                                                                                                                              |                                                                     | 671          |       |         |          | 671 |      
|                                                                                    | Class B and C  450,000,000 shares
    of series D and 400,000,000 shares of series C
    authorized; none issued and outstanding       |                                                                                                                              |                                                                     |             |       |         |          |    |      
|                                                                                    |                                                                                                                                         |                                                                                                                              |                                                                     |              |       |         |          |    
|Additional paid-in capital                                                          |                                                                                                                                         |                                                                                                                              | 804,801                                                             |              |       |         | 800,714  |    
|Unearned services                                                                   |                                                                                                                                         |                                                                                                                              | (147,045                                                            | )            |       |         | (189,191 | )  
|Accumulated other comprehensive loss                                                |                                                                                                                                         |                                                                                                                              | (6,018                                                              | )            |       |         | (3,334   | )  
|Accumulated deficit                                                                 |                                                                                                                                         |                                                                                                                              | (751,878                                                            | )            |       |         | (590,011 | )  
|                                                                                    |                                                                                                                                         |                                                                                                                              |                                                                     |              |       |         |          |    
|                                                                                    |                                                                                                                                         |                                                                                                                              | Total stockholders equity (capital
    deficiency)                 |              |       | (97,086 | )        |     |       | 21,123 | 
|                                                                                    |                                                                                                                                         |                                                                                                                              |                                                                     |              |       |         |          |    
|                                                                                    |                                                                                                                                         |                                                                                                                              | Total liabilities and stockholders equity
    (capital deficiency) |              | $     | 100,274 |          |     | $     | 84,384 | 
|                                                                                    |                                                                                                                                         |                                                                                                                              |                                                                     |              |       |         |          |    

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

F-2



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##### Table of Contents



AMERICA ONLINE LATIN AMERICA, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                                                    |                                                          |                          |          |              |         |               |          |               |         |   |          |            |         |   |         |        |         | 
|------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------- | ------------------------ | -------- | ------------ | ------- | ------------- | -------- | ------------- | ------- | - | -------- | ---------- | ------- | - | ------- | ------ | ------- | 
|                                                                                                                    |                                                          |                          |          |              |         |              
|                                                                                                                    |                                                          | Twelve Months Ended      |          | Six Months   |         |              
|                                                                                                                    |                                                          | December 31,             |          | Ended        |         | Twelve Months
|                                                                                                                    |                                                          |                          |          | December 31, |         | Ended        
|                                                                                                                    |                                                          | 2002                     |          | 2001         |         | 2000          |          | June 30, 2000
|                                                                                                                    |                                                          |                          |          |              |         |               |          |              
|Revenues:                                                                                                           |                                                          |                          |          |              |         |               |          |               |         |   |          |            |         |   |         |       
|                                                                                                                    | Subscriptions                                            |                          | $        | 62,998       |         |               | $        | 49,918        |         |   | $        | 8,050      |         |   | $       | 5,848  |        
|                                                                                                                    | Advertising and other                                    |                          |          | 9,109        |         |               |          | 16,525        |         |   |          | 4,423      |         |   |         | 3,352  |        
|                                                                                                                    |                                                          |                          |          |              |         |               |          |               |         |   |          |            |         |   |         |       
|                                                                                                                    |                                                          | Total revenues           |          |              | 72,107  |               |          |               | 66,443  |   |          |            | 12,473  |   |         |        | 9,200   | 
|Costs and expenses:                                                                                                 |                                                          |                          |          |              |         |               |          |               |         |   |          |            |         |   |         |       
|                                                                                                                    | Cost of revenues                                         |                          |          | 98,695       |         |               |          | 128,896       |         |   |          | 42,390     |         |   |         | 22,891 |        
|                                                                                                                    | Sales and marketing                                      |                          |          | 97,170       |         |               |          | 191,024       |         |   |          | 150,951    |         |   |         | 70,547 |        
|                                                                                                                    | General and administrative                               |                          |          | 32,871       |         |               |          | 41,591        |         |   |          | 19,247     |         |   |         | 15,686 |        
|                                                                                                                    |                                                          |                          |          |              |         |               |          |               |         |   |          |            |         |   |         |       
|                                                                                                                    |                                                          | Total costs and expenses |          |              | 228,736 |               |          |               | 361,511 |   |          |            | 212,588 |   |         |        | 109,124 | 
|                                                                                                                    |                                                          |                          |          |              |         |               |          |               |         |   |          |            |         |   |         |       
|Loss from operations                                                                                                |                                                          |                          | (156,629 | )            |         |               | (295,068 | )             |         |   | (200,115 | )          |         |   | (99,924 | )     
|Interest expense                                                                                                    |                                                          |                          | (5,302   | )            |         |               | (22      | )             |         |   |         |            |         |   |        |       
|Interest and other income, net                                                                                      |                                                          |                          | 139      |              |         |               | 4,775    |               |         |   | 204      |            |         |   | 2,011   |       
|                                                                                                                    |                                                          |                          |          |              |         |               |          |               |         |   |          |            |         |   |         |       
|Loss before income taxes                                                                                            |                                                          |                          | (161,792 | )            |         |               | (290,315 | )             |         |   | (199,911 | )          |         |   | (97,913 | )     
|Income taxes                                                                                                        |                                                          |                          | 75       |              |         |               |         |               |         |   |         |            |         |   |        |       
|                                                                                                                    |                                                          |                          |          |              |         |               |          |               |         |   |          |            |         |   |         |       
|Net loss                                                                                                            |                                                          |                          | (161,867 | )            |         |               | (290,315 | )             |         |   | (199,911 | )          |         |   | (97,913 | )     
|Less Dividends on Series B and C preferred
    shares                                                               |                                                          |                          | 18,724   |              |         |               | 17,005   |               |         |   | 5,711    |            |         |   |        |       
|                                                                                                                    |                                                          |                          |          |              |         |               |          |               |         |   |          |            |         |   |         |       
|Net loss applicable to common stockholders                                                                          |                                                          | $                        | (180,591 | )            |         | $             | (307,320 | )             |         | $ | (205,622 | )          |         | $ | (97,913 | )     
|                                                                                                                    |                                                          |                          |          |              |         |               |          |               |         |   |          |            |         |   |         |       
|                                                                                                                    | Loss per common share, basic and diluted                 |                          | $        | (2.69        | )       |               | $        | (4.66         | )       |   | $        | (4.24      | )       |   |         | N/A    |        
|                                                                                                                    |                                                          |                          |          |              |         |               |          |               |         |   |          |            |         |   |         |       
|                                                                                                                    | Weighted average number of common shares
    outstanding |                          |          | 67,067,603   |         |               |          | 66,017,796    |         |   |          | 48,496,436 |         |   |         |       |        
|                                                                                                                    |                                                          |                          |          |              |         |               |          |               |         |   |          |            |         |   |         |       
|Supplemental related parties
    disclosure:                                                                        |                                                          |                          |          |              |         |               |          |               |         |   |          |            |         |   |         |       
|Transactions with affiliated parties are
    reflected in the consolidated statements of operations as
    follows: |                                                          |                          |          |              |         |               |          |               |         |   |          |            |         |   |         |       
|Puerto Rico subscription revenues                                                                                   |                                                          | $                        | 10,855   |              |         | $             | 474      |               |         | $ | 174      |            |         |   |        |       
|                                                                                                                    | Advertising and other revenues                           |                          |          | 3,211        |         |               |          | 2,631         |         |   |          | 623        |         |   |         | 623    |        
|                                                                                                                    | Cost of revenues                                         |                          |          | 21,629       |         |               |          | 23,984        |         |   |          | 8,860      |         |   |         | 4,807  |        
|                                                                                                                    | Sales and marketing                                      |                          |          | 41,277       |         |               |          | 42,795        |         |   |          | 21,267     |         |   |         |       |        
|                                                                                                                    | General and administrative                               |                          |          | 1,808        |         |               |          | 2,297         |         |   |          | 1,451      |         |   |         | 2,283  |        
|                                                                                                                    | Interest expense                                         |                          |          | 5,161        |         |               |          |              |         |   |          |           |         |   |         |       |        

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

F-3



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##### Table of Contents



AMERICA ONLINE LATIN AMERICA, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY

(dollars in thousands, except share
amounts)

|                                                                             |                          |                 |             |              |  |            |       |        |  |         |            |   |  |   |     |  |  |   |         |   | 
|---------------------------------------------------------------------------- | ------------------------ | --------------- | ----------- | ------------ |  | ---------- | ----- | ------ |  | ------- | ---------- | - |  | - | --- |  |  | - | ------- | - | 
|                                                                             |                          |                 |             |              |  |           
|                                                                             |                          | Preferred Stock |             | Common Stock |  | Additional
|                                                                             |                          |                 |             |              |  | paid-in   
|                                                                             |                          | Shares          |             | Amount       |  | Shares     |       | Amount |  | capital
|                                                                             |                          |                 |             |              |  |            |       |        |  |        
|BALANCES AT JUNE 30, 1999                                                    |                          |                 | 203,716,668 |              |  | $          | 2,038 |        |  |         |           |   |  | $ |    |  |  | $ | 94,061  |  
|Net loss                                                                     |                          |                 |            |              |  |            |      |        |  |         |           |   |  |   |    |  |  |   |        |  
|Foreign currency translation adjustment                                      |                          |                 |            |              |  |            |      |        |  |         |           |   |  |   |    |  |  |   |        |  
|Net unrealized loss from securities, net of
    reclassification adjustments |                          |                 |            |              |  |            |      |        |  |         |           |   |  |   |    |  |  |   |        |  
|                                                                             | Total comprehensive loss |                 |             |              |  |            |       |        |  |         |            |   |  |   |     |  |  |   |         |   | 
|Payment of subscription receivable from affiliate                            |                          |                 |            |              |  |            |      |        |  |         |           |   |  |   |    |  |  |   |        |  
|Capital contribution                                                         |                          |                 |            |              |  |            |      |        |  |         |           |   |  |   |    |  |  |   | 30,000  |  
|Payment from affiliate for CompuServe subscribers                            |                          |                 |            |              |  |            |      |        |  |         |           |   |  |   |    |  |  |   | 879     |  
|                                                                             |                          |                 |             |              |  |            |       |        |  |         |            |   |  |   |     |  |  |   |         |  
|BALANCES AT JUNE 30, 2000                                                    |                          |                 | 203,716,668 |              |  |            | 2,038 |        |  |         |           |   |  |   |    |  |  |   | 124,940 |  
|Net loss                                                                     |                          |                 |            |              |  |            |      |        |  |         |           |   |  |   |    |  |  |   |        |  
|Foreign currency translation adjustment                                      |                          |                 |            |              |  |            |      |        |  |         |           |   |  |   |    |  |  |   |        |  
|Net unrealized loss from securities, net of
    reclassification adjustments |                          |                 |            |              |  |            |      |        |  |         |           |   |  |   |    |  |  |   |        |  
|                                                                             | Total comprehensive loss |                 |             |              |  |            |       |        |  |         |            |   |  |   |     |  |  |   |         |   | 
|Stock issued in IPO and overallotment, net of
    offering costs of $13,461  |                          |                 |            |              |  |            |      |        |  |         | 27,062,500 |   |  |   | 271 |  |  |   | 202,769 |  
|Stock and stock options issued for services*                                 |                          |                 |            |              |  |            |      |        |  |         | 31,731,250 |   |  |   | 317 |  |  |   | 253,782 |  
|Non-cash marketing expense amortization***                                   |                          |                 |            |              |  |            |      |        |  |         |           |   |  |   |    |  |  |   |        |  
|Preferred stock conversion                                                   |                          |                 | (4,054,374  | )            |  |            | (41   | )      |  |         | 4,054,374  |   |  |   | 41  |  |  |   |        |  
|Capital contribution                                                         |                          |                 |            |              |  |            |      |        |  |         |           |   |  |   |    |  |  |   | 70,000  |  
|                                                                             |                          |                 |             |              |  |            |       |        |  |         |            |   |  |   |     |  |  |   |         |  
|BALANCES AT DECEMBER 31, 2000                                                |                          |                 | 199,662,294 |              |  |            | 1,997 |        |  |         | 62,848,124 |   |  |   | 639 |  |  |   | 651,491 |  
|Net loss                                                                     |                          |                 |            |              |  |            |      |        |  |         |           |   |  |   |    |  |  |   |        |  
|Foreign currency translation adjustment                                      |                          |                 |            |              |  |            |      |        |  |         |           |   |  |   |    |  |  |   |        |  
|Net unrealized loss from securities, net of
    reclassification adjustments |                          |                 |            |              |  |            |      |        |  |         |           |   |  |   |    |  |  |   |        |  
|                                                                             | Total comprehensive loss |                 |             |              |  |            |       |        |  |         |            |   |  |   |     |  |  |   |         |   | 
|Stock issued in private placement, net of
    offering costs of $1,148       |                          |                 | 27,762,156  |              |  |            | 277   |        |  |         | 4,237,840  |   |  |   | 42  |  |  |   | 148,534 |  
|Return of stock in escrow                                                    |                          |                 |            |              |  |            |      |        |  |         | (31,250    | ) |  |   |    |  |  |   | (216    | )
|Non-cash marketing expense amortization***                                   |                          |                 |            |              |  |            |      |        |  |         |           |   |  |   |    |  |  |   |        |  
|Non-cash compensation expense**                                              |                          |                 |            |              |  |            |      |        |  |         |           |   |  |   |    |  |  |   | 905     |  
|                                                                             |                          |                 |             |              |  |            |       |        |  |         |            |   |  |   |     |  |  |   |         |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                             |                          |          |          |                |  |               |         |             |  |       |        |   |  |   |          |   |  |   |          |          |  
|---------------------------------------------------------------------------- | ------------------------ | -------- | -------- | -------------- |  | ------------- | ------- | ----------- |  | ----- | ------ | - |  | - | -------- | - |  | - | -------- | -------- | -
|                                                                             |                          |          |          |                |  | Accumulated   |         |             |  |      
|                                                                             |                          |          |          | Subscription   |  | other         |         |             |  |      
|                                                                             |                          | Unearned |          | receivable     |  | comprehensive |         | Accumulated |  |      
|                                                                             |                          | services |          | from affiliate |  | income (loss) |         | deficit     |  | Total
|                                                                             |                          |          |          |                |  |               |         |             |  |      
|BALANCES AT JUNE 30, 1999                                                    |                          | $        | 0        |                |  | $             | -77,979 |             |  | $     | (82    | ) |  | $ | (1,872   | ) |  | $ | 16,166   |         
|Net loss                                                                     |                          |          |         |                |  |               |        |             |  |       |       |   |  |   | (97,913  | ) |  |   | (97,913  | )       
|Foreign currency translation adjustment                                      |                          |          |         |                |  |               |        |             |  |       | (923   | ) |  |   |         |   |  |   | (923     | )       
|Net unrealized loss from securities, net of
    reclassification adjustments |                          |          |         |                |  |               |        |             |  |       | (2,869 | ) |  |   |         |   |  |   | (2,869   | )       
|                                                                             |                          |          |          |                |  |               |         |             |  |       |        |   |  |   |          |   |  |   |          |         
|                                                                             | Total comprehensive loss |          |          |                |  |               |         |             |  |       |        |   |  |   |          |   |  |   |          | (101,705 | )
|Payment of subscription receivable from affiliate                            |                          |          |         |                |  |               | 77,979  |             |  |       |       |   |  |   |         |   |  |   | 77,979   |         
|Capital contribution                                                         |                          |          |         |                |  |               |        |             |  |       |       |   |  |   |         |   |  |   | 30,000   |         
|Payment from affiliate for CompuServe subscribers                            |                          |          |         |                |  |               |        |             |  |       |       |   |  |   |         |   |  |   | 879      |         
|                                                                             |                          |          |          |                |  |               |         |             |  |       |        |   |  |   |          |   |  |   |          |         
|BALANCES AT JUNE 30, 2000                                                    |                          |          |         |                |  |               |        |             |  |       | (3,874 | ) |  |   | (99,785  | ) |  |   | 23,319   |         
|Net loss                                                                     |                          |          |         |                |  |               |        |             |  |       |       |   |  |   | (199,911 | ) |  |   | (199,911 | )       
|Foreign currency translation adjustment                                      |                          |          |         |                |  |               |        |             |  |       | 890    |   |  |   |         |   |  |   | 890      |         
|Net unrealized loss from securities, net of
    reclassification adjustments |                          |          |         |                |  |               |        |             |  |       | 3,055  |   |  |   |         |   |  |   | 3,055    |         
|                                                                             |                          |          |          |                |  |               |         |             |  |       |        |   |  |   |          |   |  |   |          |         
|                                                                             | Total comprehensive loss |          |          |                |  |               |         |             |  |       |        |   |  |   |          |   |  |   |          | (195,966 | )
|Stock issued in IPO and overallotment, net of
    offering costs of $13,461  |                          |          |         |                |  |               |        |             |  |       |       |   |  |   |         |   |  |   | 203,040  |         
|Stock and stock options issued for services*                                 |                          |          | (251,765 | )              |  |               |        |             |  |       |       |   |  |   |         |   |  |   | 2,334    |         
|Non-cash marketing expense amortization***                                   |                          |          | 21,094   |                |  |               |        |             |  |       |       |   |  |   |         |   |  |   | 21,094   |         
|Preferred stock conversion                                                   |                          |          |         |                |  |               |        |             |  |       |       |   |  |   |         |   |  |   |         |         
|Capital contribution                                                         |                          |          |         |                |  |               |        |             |  |       |       |   |  |   |         |   |  |   | 70,000   |         
|                                                                             |                          |          |          |                |  |               |         |             |  |       |        |   |  |   |          |   |  |   |          |         
|BALANCES AT DECEMBER 31, 2000                                                |                          |          | (230,671 | )              |  |               |        |             |  |       | 71     |   |  |   | (299,696 | ) |  |   | 123,821  |         
|Net loss                                                                     |                          |          |         |                |  |               |        |             |  |       |       |   |  |   | (290,315 | ) |  |   | (290,315 | )       
|Foreign currency translation adjustment                                      |                          |          |         |                |  |               |        |             |  |       | (3,547 | ) |  |   |         |   |  |   | (3,547   | )       
|Net unrealized loss from securities, net of
    reclassification adjustments |                          |          |         |                |  |               |        |             |  |       | 142    |   |  |   |         |   |  |   | 142      |         
|                                                                             |                          |          |          |                |  |               |         |             |  |       |        |   |  |   |          |   |  |   |          |         
|                                                                             | Total comprehensive loss |          |          |                |  |               |         |             |  |       |        |   |  |   |          |   |  |   |          | (293,720 | )
|Stock issued in private placement, net of
    offering costs of $1,148       |                          |          |         |                |  |               |        |             |  |       |       |   |  |   |         |   |  |   | 148,853  |         
|Return of stock in escrow                                                    |                          |          | 216      |                |  |               |        |             |  |       |       |   |  |   |         |   |  |   |         |         
|Non-cash marketing expense amortization***                                   |                          |          | 41,845   |                |  |               |        |             |  |       |       |   |  |   |         |   |  |   | 41,845   |         
|Non-cash compensation expense**                                              |                          |          | (581     | )              |  |               |        |             |  |       |       |   |  |   |         |   |  |   | 324      |         
|                                                                             |                          |          |          |                |  |               |         |             |  |       |        |   |  |   |          |   |  |   |          |         

F-4



---



##### Table of Contents



|                                                             |                          |                 |             |              |  |            |       |        |  |         |            |  |  |   |     |  |  |   |         |  | 
|------------------------------------------------------------ | ------------------------ | --------------- | ----------- | ------------ |  | ---------- | ----- | ------ |  | ------- | ---------- |  |  | - | --- |  |  | - | ------- |  | 
|                                                             |                          |                 |             |              |  |           
|                                                             |                          | Preferred Stock |             | Common Stock |  | Additional
|                                                             |                          |                 |             |              |  | paid-in   
|                                                             |                          | Shares          |             | Amount       |  | Shares     |       | Amount |  | capital
|                                                             |                          |                 |             |              |  |            |       |        |  |        
|BALANCES AT DECEMBER 31, 2001                                |                          |                 | 227,424,450 |              |  |            | 2,274 |        |  |         | 67,054,714 |  |  |   | 671 |  |  |   | 800,714 | 
|Net loss                                                     |                          |                 |            |              |  |            |      |        |  |         |           |  |  |   |    |  |  |   |        | 
|Foreign currency translation adjustment                      |                          |                 |            |              |  |            |      |        |  |         |           |  |  |   |    |  |  |   |        | 
|                                                             | Total comprehensive loss |                 |             |              |  |            |       |        |  |         |            |  |  |   |     |  |  |   |         |  | 
|Stock options exercised                                      |                          |                 |            |              |  |            |      |        |  |         | 15,351     |  |  |   |    |  |  |   | 39      | 
|Interest paid with issuance of Series B
    preferred shares |                          |                 | 10,865,643  |              |  |            | 109   |        |  |         |           |  |  |   |    |  |  |   | 4,048   | 
|Non-cash marketing expense amortization***                   |                          |                 |            |              |  |            |      |        |  |         |           |  |  |   |    |  |  |   |        | 
|Non-cash compensation expense**                              |                          |                 |            |              |  |            |      |        |  |         |           |  |  |   |    |  |  |   |        | 
|                                                             |                          |                 |             |              |  |            |       |        |  |         |            |  |  |   |     |  |  |   |         | 
|BALANCES AT DECEMBER 31, 2002                                |                          |                 | 238,290,093 |              |  | $          | 2,383 |        |  |         | 67,070,065 |  |  | $ | 671 |  |  | $ | 804,801 | 
|                                                             |                          |                 |             |              |  |            |       |        |  |         |            |  |  |   |     |  |  |   |         | 

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                             |                          |          |          |                |  |               |   |             |  |       |        |   |  |   |          |   |  |   |          |          |  
|------------------------------------------------------------ | ------------------------ | -------- | -------- | -------------- |  | ------------- | - | ----------- |  | ----- | ------ | - |  | - | -------- | - |  | - | -------- | -------- | -
|                                                             |                          |          |          |                |  | Accumulated   |   |             |  |      
|                                                             |                          |          |          | Subscription   |  | other         |   |             |  |      
|                                                             |                          | Unearned |          | receivable     |  | comprehensive |   | Accumulated |  |      
|                                                             |                          | services |          | from affiliate |  | income (loss) |   | deficit     |  | Total
|                                                             |                          |          |          |                |  |               |   |             |  |      
|BALANCES AT DECEMBER 31, 2001                                |                          |          | (189,191 | )              |  |               |  |             |  |       | (3,334 | ) |  |   | (590,011 | ) |  |   | 21,123   |         
|Net loss                                                     |                          |          |         |                |  |               |  |             |  |       |       |   |  |   | (161,867 | ) |  |   | (161,867 | )       
|Foreign currency translation adjustment                      |                          |          |         |                |  |               |  |             |  |       | (2,684 | ) |  |   |         |   |  |   | (2,684   | )       
|                                                             |                          |          |          |                |  |               |   |             |  |       |        |   |  |   |          |   |  |   |          |         
|                                                             | Total comprehensive loss |          |          |                |  |               |   |             |  |       |        |   |  |   |          |   |  |   |          | (164,551 | )
|Stock options exercised                                      |                          |          |         |                |  |               |  |             |  |       |       |   |  |   |         |   |  |   | 39       |         
|Interest paid with issuance of Series B
    preferred shares |                          |          |         |                |  |               |  |             |  |       |       |   |  |   |         |   |  |   | 4,157    |         
|Non-cash marketing expense amortization***                   |                          |          | 41,845   |                |  |               |  |             |  |       |       |   |  |   |         |   |  |   | 41,845   |         
|Non-cash compensation expense**                              |                          |          | 301      |                |  |               |  |             |  |       |       |   |  |   |         |   |  |   | 301      |         
|                                                             |                          |          |          |                |  |               |   |             |  |       |        |   |  |   |          |   |  |   |          |         
|BALANCES AT DECEMBER 31, 2002                                |                          | $        | (147,045 | )              |  | $             |  |             |  | $     | (6,018 | ) |  | $ | (751,878 | ) |  | $ | (97,086  | )       
|                                                             |                          |          |          |                |  |               |   |             |  |       |        |   |  |   |          |   |  |   |          |         



---



|  |                                                                                                                                                                                             
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Unearned services includes $253.6 million
    associated with stock issued to Banco Itaú, net of related
    costs accrued as of June 30, 2000. See accompanying
    Note 4 included herein.



|   |                                                                                                        
|-- | -------------------------------------------------------------------------------------------------------
|** | Non-cash compensation expense includes
    compensation cost related to an employee stock option grant.



|    |                                                          
|--- | ---------------------------------------------------------
|*** | Represents the amortization associated with the
    stock

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

F-5



---



##### Table of Contents



AMERICA ONLINE LATIN AMERICA, INC.


CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                |                                                                      |              |          |            |   |                   |          |               |   |   |          |         |   |   |         |        |  
|------------------------------------------------------------------------------- | -------------------------------------------------------------------- | ------------ | -------- | ---------- | - | ----------------- | -------- | ------------- | - | - | -------- | ------- | - | - | ------- | ------ | -
|                                                                                |                                                                      |              |          |            |   |                  
|                                                                                |                                                                      | Year Ended   |          |            |   |                  
|                                                                                |                                                                      | December 31, |          | Six Months |   | Year             
|                                                                                |                                                                      |              |          | Ended      |   | Ended            
|                                                                                |                                                                      | 2002         |          | 2001       |   | December 31, 2000 |          | June 30, 2000
|                                                                                |                                                                      |             
|(In thousands)                                                                  |                                                                      |             
|Operating activities                                                            |                                                                      |              |          |            |   |                   |          |               |   |   |          |         |   |   |         |       
|Net loss                                                                        |                                                                      | $            | (161,867 | )          |   | $                 | (290,315 | )             |   | $ | (199,911 | )       |   | $ | (97,913 | )     
|Adjustments to reconcile net loss to net cash
    used in operating activities: |                                                                      |              |          |            |   |                   |          |               |   |   |          |         |   |   |         |       
|                                                                                | (Benefit) provision for uncollectible accounts                       |              |          | (451       | ) |                   |          | 2,210         |   |   |          | 284     |   |   |         | 435    |  
|                                                                                | Depreciation and amortization                                        |              |          | 5,028      |   |                   |          | 4,920         |   |   |          | 1,545   |   |   |         | 850    |  
|                                                                                | Loss (gain) from investment securities                               |              |          | 810        |   |                   |          | (385          | ) |   |          | 3,705   |   |   |         |       |  
|                                                                                | Non-cash marketing expense (Note 5)                                  |              |          | 41,845     |   |                   |          | 41,845        |   |   |          | 21,094  |   |   |         |       |  
|                                                                                | Non-cash stock based compensation expense                            |              |          | 301        |   |                   |          | 324           |   |   |          | 252     |   |   |         |       |  
|                                                                                | Non-cash asset impairment charges and lease
    reserves             |              |          | 948        |   |                   |          | 1,473         |   |   |          |        |   |   |         |       |  
|                                                                                | Issuance of preferred stock in lieu of interest
    due to affiliate |              |          | 4,157      |   |                   |          |              |   |   |          |        |   |   |         |       |  
|Changes in operating assets and liabilities:                                    |                                                                      |              |          |            |   |                   |          |               |   |   |          |         |   |   |         |       
|                                                                                | Trade accounts receivable                                            |              |          | (52        | ) |                   |          | (9,741        | ) |   |          | (2,805  | ) |   |         | (265   | )
|                                                                                | Other operating assets                                               |              |          | 347        |   |                   |          | 7,322         |   |   |          | (23,279 | ) |   |         | (5,727 | )
|                                                                                | Operating liabilities                                                |              |          | (14,960    | ) |                   |          | 6,658         |   |   |          | 20,737  |   |   |         | 18,003 |  
|                                                                                | Deferred revenues                                                    |              |          | 153        |   |                   |          | (376          | ) |   |          | 854     |   |   |         | 372    |  
|                                                                                | Payables to affiliates                                               |              |          | (3,980     | ) |                   |          | 8,173         |   |   |          | 5,000   |   |   |         | 5,809  |  
|                                                                                |                                                                      |              |          |            |   |                   |          |               |   |   |          |         |   |   |         |       
|Net cash used in operating activities                                           |                                                                      |              | (127,721 | )          |   |                   | (227,892 | )             |   |   | (172,524 | )       |   |   | (78,436 | )     
|                                                                                |                                                                      |              |          |            |   |                   |          |               |   |   |          |         |   |   |         |       
|Investing activities                                                            |                                                                      |              |          |            |   |                   |          |               |   |   |          |         |   |   |         |       
|Capital spending                                                                |                                                                      |              | (2,026   | )          |   |                   | (5,998   | )             |   |   | (4,454   | )       |   |   | (9,129  | )     
|Purchase of short-term investments                                              |                                                                      |              |          |            |   |                   |          |               |   |   | (128,519 | )       |   |   |         |       
|Proceeds from sale of short-term investments                                    |                                                                      |              |         |            |   |                   | 69,357   |               |   |   | 59,162   |         |   |   |        |       
|Product development costs                                                       |                                                                      |              |         |            |   |                   | (194     | )             |   |   | (225     | )       |   |   | (2,167  | )     
|                                                                                |                                                                      |              |          |            |   |                   |          |               |   |   |          |         |   |   |         |       
|Net cash (used in) provided by investing
    activities                         |                                                                      |              | (2,026   | )          |   |                   | 63,165   |               |   |   | (74,036  | )       |   |   | (11,296 | )     
|                                                                                |                                                                      |              |          |            |   |                   |          |               |   |   |          |         |   |   |         |       
|Financing activities                                                            |                                                                      |              |          |            |   |                   |          |               |   |   |          |         |   |   |         |       
|Proceeds from issuance of senior convertible notes                              |                                                                      |              | 159,451  |            |   |                   |         |               |   |   |         |         |   |   |        |       
|Payments of subscription receivable from affiliate                              |                                                                      |              |         |            |   |                   |         |               |   |   |         |         |   |   | 77,979  |       
|Dividend for CompuServe subscribers                                             |                                                                      |              |         |            |   |                   |         |               |   |   |         |         |   |   | 879     |       
|Proceeds from IPO, net of offering costs                                        |                                                                      |              |         |            |   |                   |         |               |   |   | 206,124  |         |   |   | (3,038  | )     
|Net proceeds from affiliate capital contributions                               |                                                                      |              |         |            |   |                   | 148,853  |               |   |   | 70,000   |         |   |   | 30,000  |       
|Proceeds from stock options exercised                                           |                                                                      |              | 39       |            |   |                   |         |               |   |   |         |         |   |   |        |       
|                                                                                |                                                                      |              |          |            |   |                   |          |               |   |   |          |         |   |   |         |       
|Net cash provided by financing activities                                       |                                                                      |              | 159,490  |            |   |                   | 148,853  |               |   |   | 276,124  |         |   |   | 105,820 |       
|                                                                                |                                                                      |              |          |            |   |                   |          |               |   |   |          |         |   |   |         |       
|Effect of exchange rate changes on cash and cash
    equivalents                |                                                                      |              | (918     | )          |   |                   | (959     | )             |   |   | 624      |         |   |   | (483    | )     
|                                                                                |                                                                      |              |          |            |   |                   |          |               |   |   |          |         |   |   |         |       
|Net increase (decrease) in cash and cash
    equivalents                        |                                                                      |              | 28,825   |            |   |                   | (16,833  | )             |   |   | 30,188   |         |   |   | 15,605  |       
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                  |                                                                      |              | 46,676   |            |   |                   | 63,509   |               |   |   | 33,321   |         |   |   | 17,716  |       
|                                                                                |                                                                      |              |          |            |   |                   |          |               |   |   |          |         |   |   |         |       
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                        |                                                                      | $            | 75,501   |            |   | $                 | 46,676   |               |   | $ | 63,509   |         |   | $ | 33,321  |       
|                                                                                |                                                                      |              |          |            |   |                   |          |               |   |   |          |         |   |   |         |       
|Supplemental cash flow disclosure                                               |                                                                      |              |          |            |   |                   |          |               |   |   |          |         |   |   |         |       
|Income taxes paid                                                               |                                                                      | $            | 53       |            |   | $                 |         |               |   | $ |         |         |   | $ |        |       
|                                                                                |                                                                      |              |          |            |   |                   |          |               |   |   |          |         |   |   |         |       
|Interest paid                                                                   |                                                                      | $            | 1,008    |            |   | $                 |         |               |   | $ |         |         |   | $ |        |       
|                                                                                |                                                                      |              |          |            |   |                   |          |               |   |   |          |         |   |   |         |       

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

F-6



---



##### Table of Contents



AMERICA ONLINE LATIN AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002


Note 1  Organization and
Basis of Presentation:

America Online Latin America, Inc.
(AOLA or the Company) began operations
in December 1998. Also in December 1998, AOLA acquired America
Online Inc.s (America Online) Latin American
CompuServe Classic subscribers. AOLA launched its first online
service in Brazil in November 1999. The Mexico and Argentina
country services were launched in July 2000 and August 2000,
respectively. Under an agreement with America Online, AOLA also
provides certain Spanish language content to America
Onlines subscribers in Puerto Rico and markets the AOL
brand service in Puerto Rico. On August 11, 2000, AOLA
completed its initial public offering (IPO) of
25,000,000 shares of its class A common stock, raising
approximately $187.4 million in net proceeds. In September
2000, the underwriters of the IPO exercised a portion of their
over-allotment option and purchased an additional 2,062,500
shares of class A common stock, raising approximately
$15.6 million in additional net proceeds.

Before the effective date of the IPO, AOLA
conducted its business operations through affiliates of AOL
Latin America, S.L., a limited liability company organized in
Spain in December 1998. AOL Latin America, S.L. was originally
formed as a joint venture between America Online and the
Cisneros Group of Companies (the Cisneros Group).
The Cisneros Group is a name used to describe a group of
investments, joint ventures, strategic alliances and companies
that are associated with two of AOLAs directors, Ricardo
and Gustavo Cisneros, and trusts established by them principally
for the benefit of themselves and their families. In December
1998, each of America Online and the Cisneros Group owned 50%
interests in AOL Latin America, S.L. America Online contributed
royalty-free license rights in exchange for its ownership
interest. America Onlines non-cash capital contribution of
the royalty-free license rights was recorded at America
Onlines historical cost basis, which was zero. The
Cisneros Group agreed to contribute an aggregate amount of
approximately $100.1 million through July 2, 2001, in
exchange for its ownership interest. The Cisneros Group
completed its initial funding commitment in April 2000. The
Cisneros Group sold 1.96% of the shares of the company holding
its interest in AOL Latin America, S.L. at cost to two
executives of the Cisneros Group (Steven Bandel and Cristina
Pieretti, who are also directors of AOLA) and a former executive
of the Cisneros Group who is now an executive of the Company
(Eduardo Hauser). The Company did not record a corresponding
compensation expense since the price paid by these individuals
for the stock was the same price as the Cisneros Group had paid
for the stock at the formation of the Company.

On August 7, 2000, AOLA became the holding
company of, and indirectly acquired, AOL Latin America, S.L. and
its affiliates, through a corporate reorganization. In the
reorganization, America Online, the Cisneros Group and the three
individuals named above exchanged their interests in AOL Latin
America, S.L. and its affiliates for shares of the
Companys series B preferred and series C preferred stock.
As a result, America Online received 101,858,334 shares of the
Companys series B preferred stock and the Cisneros Group
and certain family members of Messrs. Gustavo and Ricardo
Cisneros received 97,803,960 shares of the Companys series
C preferred stock. The three individuals received 1,996,424
shares of series C preferred stock, which automatically
converted into class A common stock upon its transfer to them.
America Online also received a warrant to purchase 16,541,250
shares in any combination of the Companys series B
preferred, class A common or class B common stock at a per share
exercise price equal to the initial public offering price of
$8.00 per share. The Company issued the warrant to America
Online in exchange for the exclusive right to offer in Latin
America any AOL-branded wireless-based online services. This
non-cash capital contribution was valued at America
Onlines historical cost basis, which was zero. The
accompanying financial statements reflect the reorganization as
of the earliest period presented. Immediately after the initial
closing of the IPO, AOLA also issued an aggregate of 31,700,000
shares of its class A common stock to Banco Itaú and its
affiliate, Banco Banerj, in connection with the establishment of
a strategic marketing alliance between the Company and Banco
Itaú.

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AMERICA ONLINE LATIN AMERICA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002


AOLA derives its revenues principally from member
subscriptions to its AOLA country services, and to a lesser
extent, from advertising and other sources. AOLA currently has
the exclusive right to offer AOL-branded PC-based online
services in Latin America. Under its license agreement with
America Online, it also has the exclusive right to offer
AOL-branded TV-based online services in Latin America if America
Online develops these services. AOLA also has the exclusive
right to offer in Latin America any AOL-branded wireless-based
online services developed by America Online for commercial
launch on or before August 7, 2004.

As discussed in more detail in Note 4,
during fiscal year 2001, AOLAs principal stockholders,
America Online, the Cisneros Group and Banco Itaú, signed a
stock purchase agreement under which they agreed to provide an
aggregate of $150.0 million in additional capital.

On March 8, 2002, we entered into a note
purchase agreement with AOLTW, the parent company of America
Online. Under the note purchase agreement, AOLTW made available
to us, subject to standard borrowing conditions,
$160.0 million in exchange for senior convertible notes of
AOLA due in March of 2007. We drew down the remaining balance
available to us under the note purchase agreement on
December 30, 2002. The senior convertible notes bear an
annual coupon of 11%, payable quarterly. The initial conversion
price, subject to adjustment, is $3.624 per share (a premium of
20% to the closing trading price of our class A common stock of
$3.020 on March 8, 2002). The senior convertible notes are
convertible at any time at the option of the holder, and will be
redeemable by AOLA at any time after September 2003, subject to
the holders right to convert the senior convertible notes
into preferred stock. In addition, the senior convertible notes
are required to be repaid prior to maturity, at the option of
the holder, in the event of significant asset sales or if we
raise additional debt or equity funds. Interest is payable
either in cash or preferred stock, at our option. If interest is
paid in shares, the price per share is to be determined based on
the average closing price of the class A common stock for the
twenty trading dates prior to the date of payment.

From inception through December 31, 2002,
AOLAs operations have been financed through capital raised
from the Cisneros Group ($213.9 million), AOL
($116.3 million) and Banco Itaú ($19.9 million),
the proceeds generated by AOLAs IPO and the exercise of
the over-allotment option and an issuance of senior convertible
debt subscribed to by AOLTW (160.0 million). As of
December 31, 2002, all of the net proceeds generated by the
IPO and the over-allotment option (approximately
$203.1 million) had been used for working capital purposes
and to fund the losses generated by AOLAs operations.

We anticipate that the cash on hand at
December 31, 2002 will be sufficient to fund operations
into the first quarter of 2004, based upon our current operating
budget. We are currently analyzing various alternatives to
address our cash needs beyond the first quarter of 2004. There
can be no guarantee that we will be successful nor have we
identified additional financing sources at this time. An
additional restriction on our ability to obtain additional
funding is that the holders of the senior convertible notes can
require that the proceeds of any such financing to be used to
repay the senior convertible notes. There is no commitment or
obligation from America Online, AOLTW or the Cisneros Group to
fund any of our future requirements.

Note 2  Summary of
Significant Accounting Policies:



| |                            
| | ---------------------------
| | Principles of Consolidation

These financial statements include the accounts
of AOLA, its subsidiaries and its predecessors on a consolidated
basis. All significant intercompany accounts and transactions
have been eliminated.

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AMERICA ONLINE LATIN AMERICA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002




| |            
| | -----------
| | Fiscal Year

The Companys fiscal year is the
twelve-month period ended on December 31. The current
fiscal year was adopted in December 2000, after AOLAs
Board of Directors approved changing AOLAs fiscal year-end
from June 30 to December 31. As a consequence, the
twelve-month period ended December 31, 2000 presented in
the accompanying financial statements is unaudited.



| |                 
| | ----------------
| | Use of estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States requires AOLAs management to make estimates
and assumptions that affect the amounts reported of assets and
liabilities and the reported amounts of revenues and expenses
during the fiscal year in these financial statements and notes.
These estimates are subjective in nature and AOLAs actual
results could differ from those estimates.



| |                             
| | ----------------------------
| | Foreign Currency Translation

The financial statements of AOLAs wholly
owned foreign subsidiaries have been translated into U.S.
dollars in accordance with Statement of Financial Accounting
Standards (SFAS) No. 52, Foreign Currency
Translation. Assets and liabilities are translated at
year-end exchange rates, and revenues and expenses are
translated at average rates prevailing during the period.
Translation adjustments are included as a component of
stockholders equity. Foreign currency transaction gains
and losses are included in results of operations in the other
income, net component.



| |                                                
| | -----------------------------------------------
| | Revenue Recognition and Barter
    Transactions

AOLA recognizes subscription revenues over the
period that it provides its service following expiration of the
members trial period. For subscribers in Brazil, Mexico
and Argentina that have elected to pay their subscription fees
with credit or debit cards, or through direct debit from bank
accounts, AOLA begins to recognize subscription revenues when
the fees become due and are confirmed as collectible. For
subscribers in these countries who pay on a cash basis, AOLA
does not begin to recognize subscription revenues until the cash
payment is received. As AOLA gains additional experience with
the collectibility of its cash accounts receivable, it may
eventually begin to recognize revenue when the fees become due.
The vast majority of subscribers to the AOL-branded service in
Puerto Rico pay their subscription fees by credit card or direct
debit of their bank accounts. Revenue from subscribers to Puerto
Rico, which are received directly from AOL, begin to be
recognized when the fees become due.

AOLA recognizes advertising revenues for
advertising arrangements that require AOLA to display a
specified number of advertisements, for a fixed fee, as the
advertisements are displayed. AOLA recognizes revenues derived
from sponsorship or co-sponsorship arrangements that provide for
advertising and other services on a straight-line basis over the
term of the contract, provided AOLA is meeting its obligations
under the contract. AOLA records deferred revenues when it
receives payments from advertisers before AOLA displays their
advertisements on its interactive services.

AOLA also derives revenues from other
transactions arising from the conduct of its normal course of
operations. Other sources of revenue consist primarily of
revenue sharing agreements with certain telecommunications
providers and representation fees for advertising sold on
America Onlines services outside of Latin America, and are
recognized as earned.

AOLA measures revenue for payments made in the
form of equity at the fair value of the securities at the
earlier of the initiation of the agreement, if fully vested and
non-forfeitable, or the date performance is complete. The fair
value of these securities is determined by using either market
price or other standard

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##### Table of Contents



AMERICA ONLINE LATIN AMERICA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002


valuation models. If AOLAs receipt of the
securities is contingent upon the achievement of performance
criteria, AOLA will measure revenue at that time based upon the
achievement of those criteria. AOLA recognizes these revenues
ratably, over the term of the contract, or when performance is
completed. During the year ended June 30, 2000, AOLA
received $4.5 million of equity securities for future
services. AOLA did not receive any equity securities for future
services during the years ended December 31, 2002 and 2001,
or during the year ended December 31, 2001.

AOLA occasionally exchanges advertising for
products and services. Such transactions are recorded at the
estimated fair value of the products or services received or
given in accordance with the provisions of Accounting Principles
Board (APB) Opinion No. 29, Accounting
for Non-monetary Transactions and Emerging Issues Task
Force (ETIF) Issue No. 99-17,
Accounting for Advertising Barter
Transactions. Revenue from barter transactions is
recognized when advertising is provided, and services received
are charged to expense when used. Barter transactions are not
material to AOLAs statement of operations for all periods
presented.



| |                                                 
| | ------------------------------------------------
| | Subscriber Acquisition and Advertising
    Costs

AOLA accounts for direct marketing costs incurred
for acquiring subscribers as well as other advertising costs as
required by AICPA Statement of Position (SOP) 93-7,
Reporting on Advertising Costs.AOLA expenses
all advertising, marketing and other subscriber acquisition
costs as it incurs them and reports such costs in sales and
marketing expenses.

Advertising costs, included in sales and
marketing expenses, totaled approximately $90.9 million for
the year ended December 31, 2002, $184.4 million for the
year ended December 31, 2001, $98.9 million for the
six months ended December 31, 2000 and $67.6 million
for the year ended June 30, 2000.

In June 2000, AOLA entered into a ten-year
strategic alliance with Banco Itaú in consideration for
31,700,000 shares of class A common stock. This amount, which
was valued at $245.6 million was accounted for as
contra-equity  unearned services. As there are
potential specific payments related to performance targets in
the first five years of the agreement, AOLA is expensing
$164.8 million of the cost on a straight-line basis over
that period, based on the original amount of the penalties. AOLA
is expensing the remaining balance of the cost,
$88.8 million, on a straight-line basis over the ten-year
term of the agreement. The amortization of the unearned services
related to the Banco Itaú strategic alliance amounted to
$41.8 million for the years ended December 31, 2002
and 2001 and $21.1 million for the six months ended
December 31, 2000. This expense is included in the accompanying
consolidated statements of operations as part of sales and
marketing expenses.



| |                          
| | -------------------------
| | Cash and Cash Equivalents

AOLA considers all highly liquid investments with
an original maturity of three months or less to be cash
equivalents. Such investments are carried at cost plus accrued
interest, which approximates fair value. All other investments
not considered to be cash equivalents and are classified as
Investments.



| |                                                         
| | --------------------------------------------------------
| | Investments, including Securities
    Available-For-Sale

AOLA classifies all debt and equity securities
for which there is a determinable fair market value as
available-for-sale. These securities are reported at their fair
value, with unrealized gains and losses excluded from earnings
and reported in accumulated other comprehensive income (loss).
Realized gains and losses and declines in value of
available-for-sale securities, other than those determined to be
temporary, are included in other income (loss). The cost basis
for realized gains and losses on available-

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AMERICA ONLINE LATIN AMERICA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002


for-sale securities is determined on a specific
identification basis. AOLA held no debt securities at
December 31, 2002 and December 2001.

AOLA has an available-for-sale equity investment
in Hollywood Media Corp., a public company traded on the NASDAQ
National Market (ticker: HOLL). The investment was acquired in
exchange for future services and is comprised of common stock
and warrants which had an original fair market value of $4.5
million. The fair market value of this investment at
December 31, 2002 and 2001 amounted to $158,000 and
$1.4 million, respectively, including the fair value of the
warrants of $30,000 and $471,000 at those dates.

Quarterly, AOLA performs a review of the common
stock portion of its holdings in Hollywood Media Corp. to
determine if this value is impaired on an other-than-temporary
basis. As a result of that review, AOLA recorded an impairment
charge of approximately $761,000 and $3.7 million to other
income, net during the years ended December 2002 and
December 31, 2001, respectively. Under the criteria
established by SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, which
AOLA adopted on July 1, 2000, the warrants acquired in this
transaction are classified as derivatives. The decline in value
of the warrants since their initial valuation by AOLA totaled
$441,000 at December 31, 2002 and $1.3 million at
December 31, 2001.



| |                                              
| | ---------------------------------------------
| | Trade Accounts Receivable and Credit
    Risk

AOLA sells its services in Latin America to a
diverse range of customers and subscribers. The carrying amount
of AOLAs trade accounts receivable approximates their fair
market value and is encompassed within two main categories:
subscriptions and advertising and other. AOLAs trade
accounts receivable portfolio has a higher concentration of
balances derived from advertising and other revenues. At
December 31, 2002 and 2001, the balances outstanding from
this category represented approximately 73% and 76% of the total
credit portfolio.

Credit risk in subscription trade receivables is
substantially mitigated by our short collection terms and sales
to a large number of customers, as well as the low average
revenue per transaction for most of our services. The average
transaction amount for advertising and other revenue is
significantly larger, however. To mitigate credit risk,
management performs ongoing credit evaluations of its
customers financial condition and takes prompt action by
stopping delivery of services in situations where there is a
high probability of non-payment. The Company generally does not
require collateral.

Management maintains a reserve to provide for
estimated credit losses and has the responsibility for
determining that the reserve is adequate for probable and
inherent losses relating to trade receivables at each reporting
date. Allowances for potential credit losses are determined
based on historical experience and current evaluation of the
composition of accounts receivable and expected credit trends.
Actual credit losses could differ from such estimates.

AOLA recorded provisions to the allowance of
approximately $0.5 million for the year ended
December 31, 2002, $2.2 million for the year ended
December 31, 2001, $0.3 million for the six months ended
December 31, 2000 and $0.4 million for the year ended
June 30, 2000. Write-offs against the allowance totaled
approximately $0.8 million for each of the years ended
December 31, 2002 and 2001, $0.1 million for the six
months ended December 31, 2000 and $0.3 million for
the year ended June 30, 2000.



| |                       
| | ----------------------
| | Property and Equipment

Property and equipment, including leasehold
improvements, are carried at cost less accumulated depreciation.
Depreciation or amortization is provided using the straight-line
method over the estimated

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##### Table of Contents



AMERICA ONLINE LATIN AMERICA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002


useful life of each type of asset. Amortization
of leasehold improvements is computed using the straight-line
method over the terms of the leases or estimated useful lives of
the improvements, whichever are shorter.

Long-lived assets and identifiable intangibles
related to those assets to be held and used are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In
connection with the abandonment of leased facilities at its Fort
Lauderdale offices, AOLA incurred charge approximately $0.6
million during the year ended December 31, 2001, for the
impairment of leasehold improvements and furniture. There were
no impairment losses during the six-months ended
December 31, 2000, year ended June 30, 2000.

SOP 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal
Use requires AOLA to capitalize various costs for the
development of internal use software, including the costs of
coding, software configuration, upgrades and enhancements. AOLA
accounts for costs incurred for software obtained or developed
for internal use in accordance with SOP 98-1.

In March 2000, the EITF issued its consensus on
Issue No. 00-2, Accounting for Web Site
Development Costs (EITF 00-2). AOLA
accounts for the development and maintenance of its website in
accordance with EITF 00-2.

Product
Development Costs

Under specific conditions, AOLA capitalizes
certain product development costs, which consist mainly of
charges from America Online for personnel and costs associated
with the localization of its interactive services and other
developments we request America Online to provide. AOLA
capitalizes such costs incurred once the product or enhancement
reaches technological feasibility and up until completion of
beta testing. Prior to technological feasibility, and once the
product or service is commercially available (upon completion of
beta testing), costs are again expensed as incurred.
Amortization of product development costs is provided on a
product-by-product basis, using the greater of the straight-line
method or the current year revenue as a percentage of total
revenue estimates for the related software product, not to
exceed three years, beginning the month after the date of
product release.

Quarterly, AOLA reviews and expenses the
unamortized cost of any feature identified as being impaired.
AOLA also reviews the recoverability of the total unamortized
cost of all features and software products in relation to their
estimated online service and other relevant revenues and, when
necessary, makes an appropriate adjustment to net realizable
value.

Income
Taxes

Income taxes have been provided in accordance
with SFAS No. 109, Accounting for Income
Taxes. Deferred income tax assets and liabilities are
determined based on the difference between financial reporting
and the tax bases of assets and liabilities. AOLA measures these
taxes using the enacted tax rates and laws that will be in
effect when it expects the differences to reverse. Because of
the Companys history of operating losses, the
companys net deferred income tax asset position is
currently valued at zero through offsetting valuation allowances.

Financial
Instruments

The carrying amounts of AOLAs cash and cash
equivalents, other receivables, other assets, trade accounts
payable, accrued expenses and other liabilities approximate
their fair market value.

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##### Table of Contents



AMERICA ONLINE LATIN AMERICA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002


On March 8, 2002, AOLA entered into a note
purchase agreement with AOLTW. Under the note purchase
agreement, AOLTW made available to the Company, subject to
standard borrowing conditions, $160.0 million in exchange for
senior convertible notes of AOLA due in March 2007. AOLA drew
down the entire balance of $160.0 million by December 30,
2002, in accordance with the terms of the note purchase
agreement. The senior convertible notes bear an annual coupon of
11%, payable quarterly. The initial conversion price, subject to
adjustment, is $3.624 per share (a premium of 20% to the closing
trading price of the Companys class A common stock of
$3.020 on March 8, 2002). The senior convertible notes are
convertible at any time at the option of the holder, and will be
redeemable by AOLA at any time after September 11, 2003,
subject to the holders right to convert the senior
convertible notes into preferred stock. In addition, the senior
convertible notes are required to be repaid prior to maturity,
at the option of the holder, in the event of significant asset
sales or if we raise additional debt or equity funds. Interest
is payable either in cash or preferred stock, at our option. If
interest is paid in shares, the price per share is to be
determined based on the average closing price of the class A
common stock for the twenty trading dates prior to the date of
payment. AOLA expects to incur approximately $17.8 million in
annual interest expense as long as the full amount of $160.0
million in senior convertible notes are outstanding. The Company
expects to pay future interest amounts through the issuance of
additional shares of preferred stock in order to conserve cash.

Loss Per
Common Share

AOLA computes loss per common share in accordance
with SFAS No. 128, Earnings per Share.Basic loss per common share is calculated based on the
weighted average number of shares of class A common stock
outstanding during the period. AOLA has convertible preferred
stock and outstanding options and warrants that are convertible
or exercisable into AOLAs common stock. AOLA has not
included these potential common shares in the computation of
diluted loss per share as their effect is anti-dilutive for all
periods presented.

Loss per common share does not include any
accretion to liquidation value of AOLAs series B and
C preferred stock. Refer to Note 5 included herein for the
loss per common share calculation for the periods reported in
these financial statements.

Stock-Based
Compensation

AOLA follows SFAS No. 123,
Accounting for Stock-Based Compensation(SFAS 123), which established a fair value
based method of accounting for stock-based compensation plans
and encourages entities to adopt that method of accounting for
their employee stock compensation plans. This pronouncement also
allows an entity to continue to measure compensation cost for
those plans based on Accounting Principles Board
(APB) Opinion No. 25 (APB 25),
Accounting for Stock Issued to Employeesand
disclose the pro forma net income and net income per share as if
the fair value method had been applied in measuring cost.
Compensation cost is determined based on the intrinsic value of
the stock options as required by the provisions of APB 25
and is recognized when probable, [based on the best estimate of
the outcome of the performance condition]. AOLA has elected to
apply APB 25 in accounting for its 2000 Stock Plan.
Accordingly, no compensation expense has been recognized for
options granted with an exercise price equal to market value at
the date of grant. See Note [6] for the pro forma
disclosure of the effect on net loss and earnings per common
share on the application of the fair value based method in
measuring compensation expense.

AOLA uses the intrinsic value method to account
for employee stock options. No compensation expense was
recognized related to new options granted in the year ended
December 31, 2002 for grants issued at below fair market
value. In the year ended December 31, 2001, compensation
expense related to

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##### Table of Contents



AMERICA ONLINE LATIN AMERICA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002


stock options granted at an exercise price less
than fair market value amounted to approximately $300,000. The
following table presents AOLAs net loss and loss per
common share assuming AOLA had used the fair value method to
recognize compensation expense with respect to its options:

|                                                              |  |                                 |          |      |  |   |          |  
|------------------------------------------------------------- |  | ------------------------------- | -------- | ---- |  | - | -------- | -
|                                                              |  |                                
|                                                              |  | Year Ended                     
|                                                              |  | December 31,                   
|                                                              |  |                                
|                                                              |  | 2002                            |          | 2001
|                                                              |  |                                 |          |     
|                                                              |  |                                
|                                                              |  | (In thousands, except per share
|                                                              |  | data)                          
|Reported                                                      |  |                                 |          |      |  |   |          |  
|Net loss applicable to common stockholders                    |  | $                               | (180,591 | )    |  | $ | (307,203 | )
|Loss per common share  basic and
    diluted                 |  | $                               | (2.69    | )    |  | $ | (4.66    | )
|Recorded employee stock-based compensation                    |  | $                               | 301      |      |  | $ | 324      |  
|Employee stock-based compensation under fair
    value method |  | $                               | (5,705   | )    |  | $ | (15,116  | )
|Pro forma net loss                                            |  | $                               | (185,995 | )    |  | $ | (321,995 | )
|Loss per common share  basic and
    diluted                 |  | $                               | (2.77    | )    |  | $ | (4.88    | )

AOLA estimated the fair value of
employee-stock-based awards using the Black-Scholes
option-pricing model based on the weighted average assumptions
for options granted during the periods as indicated below.

|                                               |  |              |      |      |  |   |      |  
|---------------------------------------------- |  | ------------ | ---- | ---- |  | - | ---- | -
|                                               |  |             
|                                               |  | Year Ended  
|                                               |  | December 31,
|                                               |  |             
|                                               |  | 2002         |      | 2001
|                                               |  |              |      |     
|Risk free interest rate                        |  |              | 2.63 | %    |  |   | 4.67 | %
|Expected life (in years)                       |  |              | 4.5  |      |  |   | 4.5  |  
|Expected volatility                            |  |              | 70.0 | %    |  |   | 70.0 | %
|Expected dividend yield                        |  |              | 0.0  | %    |  |   | 0.0  | %
|Weighted average fair value of options granted |  | $            | 0.88 |      |  | $ | 1.94 |  

Comprehensive
Loss

Comprehensive loss is defined as the change in
equity of a business enterprise during a period from
transactions and other events and circumstances, except for
those resulting from investments by owners and distributions to
owners. In AOLAs case, in addition to net loss, other
comprehensive loss results from changes in the unrealized gains
and losses on securities that are classified as
available-for-sale and foreign currency translation adjustments.
The presentation of comprehensive loss required by SFAS
No. 130, Reporting Comprehensive Income,
is set forth in the accompanying statements of changes in
stockholders equity (capital deficiency).



| |                  
| | -----------------
| | Reclassifications

Certain reclassifications have been made to the
consolidated financial statements for the year ended
June 30, 2000, the six months ended December 31, 2000
and the year ended December 31, 2001 to conform to the
presentation of the consolidated financial statements for the
year ended December 31, 2002.



| |                      
| | ---------------------
| | Recent Pronouncements

In July 2001, the Financial Accounting Standards
Board (FASB) issued Statements of Financial
Accounting Standards No. 141, Business
Combinations (SFAS 141) and No. 142,
Goodwill and Other Intangible Assets
(SFAS 142). These standards change the
accounting for business

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AMERICA ONLINE LATIN AMERICA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002


combinations by, among other things, prohibiting
the prospective use of pooling-of-interests accounting and
requiring companies to stop amortizing goodwill and certain
intangible assets with an indefinite useful life created by
business combinations accounted for using the purchase method of
accounting. Instead, goodwill and intangible assets deemed to
have an indefinite useful life will be subject to an annual
review for impairment. The new standards became effective for
AOLA in the first quarter of 2002 and for purchase business
combinations consummated after June 30, 2001. These statements
did not have any material effect on AOLAs consolidated
financial statements.

In August 2001, the FASB issued Statement of
Financial Accounting Standards No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets(SFAS 144). SFAS 144 clarifies the
accounting for the impairment of long-lived assets and for
long-lived assets to be disposed of, including the disposal of
business segments and major lines of business. SFAS 144 became
effective for AOLA in the first quarter of 2002. Application of
the provisions of SFAS 144 did not have a material impact on
AOLAs consolidated financial statements.

In April 2002, the FASB issued SFAS 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS 145 rescinds FASB No. 4,
Reporting Gains and Losses from Extinguishment of
Debt, and an amendment of that Statement, FASB
No. 64, Extinguishments of Debt to Satisfy
Sinking-Fund Requirements. This Statement also rescinds
FASB No. 44, Accounting for Intangible Assets of
Motor Carriers. This Statement amends FASB No. 13,
Accounting for Leases, to eliminate inconsistency
between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback
transactions. This Statement also amends other existing
authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability
under changed conditions. SFAS 145 is effective for fiscal years
beginning after May 15, 2002 with regard to the rescission
of Statement 4; the provisions in paragraph 8 and 9(c)
of this Statement related to Statement 13 are effective for
transactions occurring after May 15, 2002; and all other
provisions are effective for financial statements issued on or
after May 15, 2002. AOLA does not believe that the adoption
of the provisions of SFAS 145 will have a material, if any,
impact on its results of operations.

FASB Statement 146, Accounting for
Costs Associated with Exit or Disposal Activities,
addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies EITF
Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a
Restructuring). The principal difference between
Statement 146 and Issue 94-3 relates to Statement
146s requirements for recognition of a liability for a
cost associated with an exit or disposal activity.
Statement 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when
the liability is incurred. Under Issue 94-3, a liability for an
exit cost as generally defined in Issue 94-3 was recognized at
the date of an entitys commitment to an exit plan. A
fundamental conclusion reached by the FASB in this Statement is
that an entitys commitment to a plan, by itself, does not
create an obligation that meets the definition of a liability.
Therefore, this Statement eliminates the definition and
requirements for recognition of exit costs in Issue 94-3. This
Statement also establishes that fair value is the objective for
initial measurement of the liability.

Severance pay under Statement 146, in many
cases, would be recognized over time rather than up front. The
FASB decided that if the benefit arrangement requires employees
to render future service beyond a minimum retention
period a liability should be recognized as employees
render service over the future service period even if the
benefit formula used to calculate an employees termination
benefit is based on length of service. The provisions of this
Statement are effective for exit or disposal activities that are
initiated after December 31, 2002. AOLA does not believe
that the adoption of the provisions of SFAS 146 will have a
material, if any, impact on its results of operations.

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AMERICA ONLINE LATIN AMERICA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002


In December 2002, the FASB issued Statement
No. 148, Accounting for Stock-Based Compensation,
Transition and Disclosure (SFAS 148).
SFAS 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting
for stock-based employee compensation. SFAS 148 also requires
that disclosures of the pro forma effect of using the fair value
method of accounting for stock-based employee compensation be
displayed more prominently and in a tabular format.
Additionally, SFAS 148 requires disclosure of the pro forma
effect in interim financial statements. The transition and
annual disclosure requirements of SFAS 148 are effective
for fiscal years ended after December 15, 2002. The interim
disclosure requirements of SFAS 148 are effective for
interim periods ending after December 15, 2002. The
adoption of the provisions of SFAS 148 did not have a
material impact on the Companys consolidated financial
statements.

Reimbursement
of Out-of-Pocket Expenses

In January 2002, the Financial Accounting
Standards Boards (FASB) Emerging Issues Task
Force (EITF) reached a consensus on EITF
No. 01-14, Income Statement Characterization of
Reimbursements Received for Out-of-Pocket Expenses
Incurred (EITF 01-14). EITF 01-14
requires that reimbursements received for out-of-pocket expenses
be classified as revenue on the income statement.
EITF 01-14 was effective for AOLA in the first quarter of
2002 and required retroactive restatement of all periods
presented to reflect the new accounting provisions. The adoption
of the provisions of EITF 01-14 did not have a material
impact on the Companys consolidated financial statements.



| |                              
| | -----------------------------
| | Multiple Element Arrangements

In November 2002, the EITF reached a consensus on
EITF No. 00-21, Revenue Arrangements with Multiple
Deliverables (EITF 00-21).
EITF 00-21 provides guidance on how to account for
arrangements that involve the delivery or performance of
multiple products, services and/or rights to use assets. The
provisions of EITF 00-21 will apply to revenue arrangements
entered into in fiscal periods beginning after June 15,
2003. The Company believes that its current accounting is
consistent with the provisions of EITF 00-21 and therefore
does not expect that the application of the provisions of
EITF 00-21 will have a material impact on the
Companys consolidated financial statements. The adoption
of the provisions of EITF 00-21 did not have a material
impact on the Companys consolidated financial statements.

Note 3  Related Parties
Transactions



| |                           
| | --------------------------
| | The AOL Services Agreement

The Company entered into a services agreement
with America Online on August 7, 2000, under which America
Online provides various services to us, including:



| |   |                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------
| |  | localization of AOL software and software updates;                                                                             
|
| |  | development and installation services, including
    requested modifications, enhancements and revisions to
    AOLs software;
|
| |  | host computer services;                                                                                                        
|
| |  | network connections from the AOLA services to the
    America Online servers;                                                  
|
| |  | technical support;                                                                                                             
|
| |  | training in areas such as marketing, business
    development, member support, public relations, finance and
    accounting;   

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AMERICA ONLINE LATIN AMERICA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002




| |   |                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------
| |  | support and maintenance for third-party software
    licensed to the Company by America Online; and
|
| |  | joint venture assistance.                                                                          

AOLA agreed to compensate America Online for
these services at rates at least as favorable as those charged
by America Online to any other party, including joint venture
affiliates, but excluding affiliates that are at least 75% owned
by America Online. Based on managements experience
negotiating similar contracts, as well as its knowledge of the
Companys competitors cost structures, the Company
believes that the terms of the services agreement are at least
as favorable as the Company could have obtained from an
unaffiliated third party.

For the 2002 fiscal year, AOLA incurred expenses
totaling approximately $19.3 million payable to America
Online under our services agreement.

AOLA has included the unpaid portion of these
costs in payables to affiliates in the accompanying consolidated
balance sheets. America Online charges fees for providing these
services on an allocated cost plus basis. The Cisneros Group
charges fees for services on a cost basis. Management believes
that the expenses for these services are representative of what
would have been incurred by AOLA on a stand-alone basis.

As of December 31, 2002, America Online
billed the Company approximately $3.6 million over and above
amounts recorded in its statement of operations. The difference
relates to a portion of items under dispute, primarily for
support services provided by America Online. The Company is
currently negotiating with America Online regarding the total
amount in dispute and at this point does not expect to pay this
approximately $3.6 million amount. As a result, this amount
is not reflected in the Companys consolidated statement of
operations. In the event the Company is unable to negotiate a
favorable resolution of this dispute, it may recognize an
incremental charge to future costs of revenue. The Company is
also currently negotiating the method for calculating amounts
due for 2003 under the AOL online services agreement.



| |                                                           
| | ----------------------------------------------------------
| | The Letter Agreement Regarding Puerto Rico
    Subscribers

In December 2000, the Company entered into a
letter agreement with America Online under which America Online
transferred to AOLA the economic benefit associated with
subscribers to the AOL-branded service in Puerto Rico.
Subscribers to the AOL-branded service in Puerto Rico are
included in AOLA member totals. For fiscal 2002, AOLA incurred
$2.7 million to America Online under this agreement. During
the year ended December 31, 2002, AOLA also received from
America Online $10.9 million for fees collected by America
Online from subscribers to the AOL-branded service in Puerto
Rico, which were recorded as subscription revenue.



| |            
| | -----------
| | AOLTW Notes

AOLA paid $5.2 million for interest on the
senior convertible notes purchased by AOLTW. The major portion
of the payment for interest, or $4.2 million, was paid through
the issuance of new shares of series B preferred stock.



| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | Advertising and Content Agreement with Turner
    Broadcasting System Latin America, Inc.

In 2000, AOLA entered into an advertising and
content agreement with Turner Broadcasting System Latin America,
Inc., an affiliate of AOLTW. Under this agreement AOLA receives
content from CNN, Cartoon Network and TNT for distribution on
the AOLA country services. For the year ended December 31,
2002, AOLA purchased approximately $560,000 for content-related
services during 2002.

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AMERICA ONLINE LATIN AMERICA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002


AOLA also purchased approximately
$1.0 million in advertising on the various Turner media
properties for the year ended December 31, 2001 and $0.3
million for the six months ended December 31, 2000.

In addition, during the year ended
December 31, 2002, AOLA also made a prepayment for future
advertisement to Turner Broadcasting in the amount of
$1.4 million. Advertisement services are to be delivered at
AOLAs discretion, over the next two years. As of
December 31, 2002, the balance of this prepaid amount is
approximately $1.1 million, which is included in prepaid
expenses in the accompanying consolidated balance sheet.

Support
and Service Arrangements with the Cisneros Group and Affiliated
Companies

AOLA also receives support services from the
Cisneros Group, who charges fees to AOLA on a cost basis for
those services. Management believes that the expenses for these
services are representative of what would have been incurred by
AOLA on a stand-alone basis.

In addition, AOLA has entered into various
agreements with companies associated to the Cisneros Group,
including the agreement with Claxson Interactive Group Inc.,
under which AOLA advertised on one of Claxsons cable TV
properties during 2001. the agreement with Pueblo Supermarkets
in Puerto Rico, under which AOLA pays rent for kiosks in the
supermarkets for purposes of soliciting new members, along with
a bounty for new members who register through these promotional
efforts. Lastly, in connection with the Rock in Rio music
festival, AOLA entered into an agreement with DIRECTV Latin
America, LLC to produce a video of this event, as well as
granted them a license to broadcast this video in Latin America.

The costs incurred payable to the Cisneros Group
and its affiliates for the aforementioned services totaled
approximately $0.2 million and $0.5 million for the
years ended December 31, 2002 and 2001,respectively. For
the six months ended December 31, 2000, AOLA paid
$0.2 million and $0.4 million related to the year
ended June 30, 2000. AOLA has included the unpaid portion
of these costs in payables to affiliates in the accompanying
consolidated balance sheets.

Advertising
Agreements with Banco Itaú

During 2001, AOLA entered into a series of
advertising agreements with Banco Itaú under which they
advertise on the AOLA country service and portal in Brazil. For
the year ended December 31, 2002, AOLA received
approximately $0.9 million under these agreements from
Banco Itaú. The amount of payments received by the Company
during the year ended December 31, 2001 was approximately
$1.5 million.

Acquisition
of AOLs Latin American CompuServe Classic
subscribers

In December 1998, the Company acquired AOLs
Latin American CompuServe Classic subscribers for approximately
$4.0 million. The cost to acquire these Latin American
CompuServe Classic subscribers was determined using a formula
that was based on the expected number of Latin American
CompuServe Classic subscribers at December 15, 1999.
Because the number of subscribers at December 15, 1999 was lower
than expected, AOL repaid $879,000 to the Company during the
fiscal year ended June 30, 2000. The initial payment of
$4.0 million and the refund of $879,000 have been reflected
in stockholders equity.

Dependence
on AOL

The termination or loss of exclusivity of
AOLAs license or services agreement with AOL would
adversely impact the Companys business. In exchange for
its initial ownership interest in AOLA, AOL entered into a
royalty-free license agreement and a services agreement with
AOLA. Under the license

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AMERICA ONLINE LATIN AMERICA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002


agreement, AOLA has the exclusive right to offer
in Latin America AOL-branded PC-based online services. AOLA also
has the exclusive right to offer AOL-branded TV-based online
services in Latin America. AOLA has the additional exclusive
right to offer in Latin America any AOL-branded wireless-based
online services developed by AOL for commercial launch on or
before August 7, 2004.

AOLA also has a non-exclusive license to offer a
localized network of Spanish- and Portuguese-language
AOL-branded portals in Latin America with an option to license
exclusively any Spanish- or Portuguese-language AOL-branded
portals that AOL may develop for the Latin American market,
subject to payment of a license fee. Under the services
agreement, AOL provides services including software
localization, updates, development, and installation services,
server connection services, technical support and training. AOL
also provides AOLA with business development, administrative,
tax, financial and legal services.

Each of these agreements may be terminated if
AOLA materially breaches its terms. AOLA will lose exclusivity
of its licensed rights to PC-based services upon the later of
December 15, 2003 or the date on which AOL or the Cisneros
Group owns less than 20% of the outstanding capital stock of
AOLA outstanding on August 7, 2000, and to TV- and
wireless-based services on the later of August 7, 2005 or
the date on which either AOL or the Cisneros Group owns less
than 20% of the outstanding capital stock of AOLA.

Note 4  Stockholders
Equity:

Preferred
Stock

AOLA is authorized to issue up to 1,000,000,000
shares of preferred stock, par value of $.01 per share, in one
or more series with rights, preferences and privileges that are
determined by AOLAs board of directors. As of
December 31, 2002, the Company had outstanding 126,876,099
shares of series B preferred stock, which is the series owned by
America Online and AOLTW, and 111,413,994 shares of series C
preferred stock, which is the series owned by the Cisneros Group.

Before completion of AOLAs initial public
offering in August 2000, AOLA had issued 101,858,334 shares of
series B preferred stock and 101,858,334 shares of series C
preferred stock. At the time, America Online owned all of the
outstanding series B preferred stock and the Cisneros Group and
certain family members of Gustavo Cisneros and Ricardo Cisneros
owned all of the outstanding series C preferred stock. The
series B and series C preferred stock are convertible at any
time on a one-for-one basis into shares of class B and class C
common stock, which are convertible on a one-for-one basis into
shares of class A common stock.

Concurrently with the IPO, the Cisneros Group
gifted 2,057,950 shares of class A common stock to some of its
current and former employees. These shares were issued by AOLA
to the Cisneros Group as series C preferred stock and converted
into shares of class A common stock upon their gifting. Also,
the 1,996,424 shares of series C preferred stock held by the
three individuals, as described in Note 1, converted into
1,996,424 shares of class A common stock.

On March 30, 2001, AOLAs principal
stockholders, America Online, the Cisneros Group and Banco
Itaú, signed a stock purchase agreement under which they
agreed to provide an aggregate of $150.0 million in
additional capital. America Online and the Cisneros Group
purchased a combined total of $130.1 million in redeemable
convertible preferred stock and Banco Itaú purchased
$19.9 million of class A common stock.

Under the aforementioned agreement, America
Online purchased approximately a total of $66.3 million of
the AOLAs series B redeemable convertible preferred stock
on April 2, 2001, June 1,

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AMERICA ONLINE LATIN AMERICA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002


2001 and July 31, 2001. The Cisneros Group
purchased a total of approximately $63.8 million of
AOLAs series C redeemable convertible preferred stock on
April 2, 2001, June 1, 2001 and July 31, 2001. Banco
Itaú purchased approximately $19.9 million of
AOLAs class A common stock on April 2, 2001. The
purchase price per share for the series B preferred stock,
series C preferred stock and class A common stock was $4.6875
per share.

On July 31, 2001, the stockholders and board
of directors authorized the amendment and restatement of
AOLAs certificate of incorporation under which the
redemption date of the series B and series C preferred stock was
changed to provide that on August 7, 2005, 87.8% of the
then outstanding series B and C preferred stock will be redeemed
and the remaining outstanding series B and series C preferred
stock will be redeemed on April 2, 2006, plus all
accumulated and unpaid dividends. The series B and series C
preferred stock will be redeemed, at AOLAs option, in
cash, by delivery of fully paid and non-assessable shares of
class A common stock, or by any combination of cash and shares
of class A common stock. The redemption price was changed to
equate to a revised liquidation preference of $2.7268 per share
and $2.7272 per share for the series B and series C preferred
stock, respectively, plus all accrued and unpaid dividends.

Holders of the series B and C preferred stock are
entitled to receive a cumulative annual dividend at the rate of
3% of the per share liquidation preference, of $2.7268 and
$2.7272 per share, respectively, as and when declared by the
board of directors and before payment of any dividend to the
holders of the class A, class B and class C common stock. The
dividend is payable in series B and C preferred stock, in cash
or in any combination of series B and C preferred stock and
cash, at AOLAs option. After payment of dividends on the
preferred stock, the holders of the class A, class B and class C
common stock, together with the holders of series B and series C
preferred stock, will share ratably in any dividend declared by
the board of directors based on the number of shares of common
stock and preferred stock held. As of December 31, 2002,
the liquidation value on the series B preferred shares was
approximately $346.0 million, excluding dividends in
arrears of $21.2 million. For the series C preferred
shares, the liquidation value at such date was approximately
$303.8 million, excluding dividends in arrears of
$20.2 million.

Common
Stock

AOLA is authorized to issue a total of
2,250,000,000 shares of common stock, par value $.01 per share.
This amount is comprised of authority to issue 1,400,000,000
shares of class A common stock, 450,000,000 shares of class B
common stock and 400,000 shares of class C common stock. As of
December 31, 2002, a total of 67,070,065 shares of class A
common stock were outstanding. The increase in common shares
outstanding during versus 2001 was due to the exercise of
employee stock option grants. No shares of class B common stock
are outstanding and no shares of class C common stock are
outstanding. The class B and class C common stock is convertible
into shares of class A common stock at any time on a one-for-one
basis.

As described on the preferred stock section of
this note, during fiscal year 2001 a total of 4,237,840 shares
of class A common stock were issued to Banco Itau under the
March 30, 2001 stock purchase agreement, increasing the
number of class A common shares issued and outstanding to
67,054,714 shares at December 31, 2001.

The holders of class A common stock are each
entitled to one vote per share. America Online, AOLTW and the
Cisneros Group are entitled to ten votes for each share of
series B and series C preferred stock and, if issued, class B
and class C common stock, that they hold. From inception through
December 31, 2002, the Cisneros Group has contributed
approximately $213.9 million to AOLs equity capital
and America Online has contributed $116.3 million to
AOLs equity capital. AOLTW has

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AMERICA ONLINE LATIN AMERICA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002


subscribed to and purchased $ 160.0 million
of senior convertible notes, which are convertible into shares
of the Companys series B preferred stock. As of
December 31, 2002, none of the AOLTW notes had been
converted.

Under AOLAs restated certificate of
incorporation, each of America Online and the Cisneros Group has
the right to directly elect five members of AOLAs
14-member board of directors. The affirmative vote of the
holders of a majority of the outstanding series B preferred
stock and class B common stock, voting separately as a class, as
well as the holders of a majority of the outstanding series C
preferred stock and class C common stock, voting separately as a
class, is required to approve a large number of corporate and
business matters, as well as to amend or repeal a number of the
provisions of AOLAs restated certificate of incorporation.

In accordance with the Registration Rights and
Stockholders Agreement by and among AOLA, America Online,
the Cisneros Group and Banco Itaú, both America Online and
the Cisneros Group have agreed to vote for one nominee
designated by Banco Itaú for election to AOLAs Board
of Directors. On July 31, 2002, Roberto Setubal, the
director designated by Banco Itaú, resigned from our Board
of Directors. As a result, AOLAs Board of Directors
currently has 13 members and one vacancy.

Otherwise, holders of class A common stock,
series B preferred stock and series C preferred stock and any
issued class B and class C common stock generally will vote
together as a single class on matters presented to the
stockholders for their vote or approval, including for election
of directors who are not elected directly by America Online or
the Cisneros Group, except as otherwise required by applicable
Delaware law. However, because America Online, AOLTW and the
Cisneros Group together control approximately 97.6% of the
voting power of outstanding AOLA capital stock, America Online,
AOLTW and the Cisneros Group have the power to elect the
remaining four directors.

Under the stockholders agreement by and
among the Company, America Online and the Cisneros Group, both
America Online and the Cisneros Group have agreed to non-compete
provisions. If either America Online or the Cisneros Group
breaches these provisions, the Company and the non-breaching
party may be able to acquire the breaching partys capital
stock.

Common shares reserved for issuance at
December 31, 2002 were:

|                              |  |  |             | 
|----------------------------- |  |  | ----------- | 
|Series B Preferred Stock      |  |  | 126,876,099 | 
|Series C Preferred Stock      |  |  | 111,413,994 | 
|AOL Warrant                   |  |  | 16,541,250  | 
|AOLTW Senior Convertible Note |  |  | 44,150,105  | 
|Stock Options                 |  |  | 22,808,333  | 
|                              |  |  |             | 
|                              |  |  | 321,789,781 | 
|                              |  |  |             | 

The Banco
Itaú Strategic Alliance

In June 2000, AOLA entered into a ten-year
strategic alliance with Banco Itaú, one of the largest
banks in Latin America, which was providing limited online
financial services to approximately 1.4 million of its
approximately seven million customers at the time. AOLA launched
a co-branded, customized version of our America Online Brazil
service that Banco Itaú began marketing to its customers in
December 2000 and Banco Itaú is obligated to promote the
co-branded service as the principal means of accessing Banco
Itaús interactive financial services. As of December
2002, Banco Itau reported that it had approximately
9.2 million active customers, of which 2.6 million
were registered to use online banking services, primarily
through Banco Itaús proprietary service, as well as
the AOL co-branded service.

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AMERICA ONLINE LATIN AMERICA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002


AOLA believes that this relationship will enable
it to expand its Internet presence in Brazil by allowing it to
gain access to Banco Itaús online as well as offline
customer base.

The co-branded service is substantially the same
as the AOLA country service in terms of technology and content,
except that it offers a co-branded welcome screen for Banco
Itaú customers, a Banco Itaú toolbar icon, a special
version of the finance channel and links that directly connect
Banco Itaús customers to its online financial
services. Subscribers to the co-branded service have access to a
full line of features as provided to general customers,
including e-mail with multiple AOL screen names, instant
messaging, Internet access, interaction with a worldwide online
community and 24-hour customer service.

Under the terms of the original agreement with
Banco Itaú, Banco Itaú and AOLA established subscriber
targets for the co-branded service of 250,000 verified
subscribers at December 10, 2001 and 500,000 at
December 10, 2002 (subsequently moved to April 30,
2003) and a secondary target of a total of 1,000,000 verified
subscribers at December 10,2002 (subsequently moved to
April 30, 2003). In addition, Banco Itaú and AOLA had
established the following additional targets: (i) for the
12-month period ending December 10, 2003, revenues
generated from subscribers to the co-branded service would
account for at least 39% of AOLAs aggregate revenues in
Brazil, (ii) on December 10, 2004, there would be at
least 2,000,000 verified subscribers, and for the twelve months
ended on that date revenues generated from subscribers to the
co-branded service would account for at least 46% of AOLAs
aggregate revenues in Brazil, and (iii) for the 12-month
period ending December 10,2005, revenues generated from
subscribers to the co-branded service would account for at least
56% of AOLs aggregate revenues in Brazil. Verified
subscribers are those subscribers who have used the co-branded
service in any two of the three months preceding the applicable
measurement date or who have first accessed the co-branded
service in the month prior to the applicable measurement date.
Under the agreement, if the verified subscriber level and
revenue targets were not met, Banco Itaú was required to
make a reference payment to AOLA. Banco Itaú met the
subscriber target for the co-branded service of 250,000 verified
subscribers at the December 10, 2001 measurement date.

On December 14, 2002, AOLA entered into an
agreement that re-structured our strategic marketing alliance
with Banco Itaú. Under the terms of the agreement, AOLA
oversees, in large part, the marketing activities for the
co-branded service. Under the terms of the prior agreement, AOLA
did not have control of the actual execution of the marketing
services provided by Banco Itaú. Banco Itaú is
obligated to establish kiosks and point-of-sale displays inside
many of its bank branches for the promotion of the co-branded
service, which are staffed by promoters trained by AOL Brazil.
Potential subscribers will be able to sample the co-branded
service and will be offered the opportunity to register in the
branch. Furthermore, Banco Itaú is required to distribute,
at AOLAs direction, CD-ROMs containing the software for
the co-branded service, in connection with the in-branch
promotions and through direct mail. In addition, Banco Itaú
is required to produce and broadcast a certain television
commercials promoting the co-branded service and is required to
provide exclusive or preferred online banking benefits to
subscribers to the co-branded service. Banco Itaú will be
responsible for the cost of these marketing efforts. The
modified marketing arrangements will remain in effect through
January 2006, although the ten-year term of the original
agreement will not change.

Banco Itaús customers who register for
the co-branded service following December 14, 2002 will be
entitled to a one-month free trial period, the length of which
may be changed in the future. Prior to December 14, 2002,
Banco Itaú was required to offer its subscribers at least
one hour of subsidized usage per month following the expiration
of their trial period, although Banco Itaú was responsible
to AOLA only for actual usage by the subscriber.

Banco Itaú may no longer choose to provide
subsidized hours to customers who become subscribers to the
co-branded service after December 14, 2002, although Banco
Itaú at its option may continue to

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AMERICA ONLINE LATIN AMERICA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002


subsidize hours for certain customers who were
subscribers to the co-branded service prior to December 14,
2002. In addition, during a transition period to be defined,
Banco Itaú will continue to be required to pay AOLA a
nominal amount for subscribers who have not used the service
during the previous month and who are no longer in their free
trial period.

Banco Itaú customers who become subscribers
to the co-branded service following the date of the revised
marketing agreement will be entitled to a free trial period to
be defined by AOLA (currently one month) and, if they subscribe
to the monthly unlimited-use plan, will be entitled to a 20%
discount off the standard price. During the transition period
described above, subscribers to the co-branded service who as of
December 14, 2002 did not currently use the service or who
did not subscribe to a paid plan will be given a limited time to
move to the discounted 20% plan or to other payment options.
Those who fail to elect a plan will have their co-branded
service discontinued. AOLA expects that a majority of the
current subscribers to the Banco Itaú co-branded service
will be terminated during the next two quarters for failing to
select a plan.

Under the terms of the new agreement, Banco
Itaú and AOLA eliminated the subscriber targets for the
period ending April 30, 2003 and replaced the targets for
the remaining three years with targets based on a combination of
minimum revenue levels and the fulfillment of the marketing
commitments described above. If the new targets are not met,
Banco Itaú is required to make a reference payment to AOLA.
The dates for measuring performance with the new targets have
been moved to March 24, 2004, 2005 and 2006, respectively.
The aggregate amounts that Banco Itaú will be required to
pay AOLA if the marketing or revenue targets are not met, which
are subject to annual caps on liability, have been reduced from
an aggregate of approximately $135.4 million to
approximately $60.0 million for the balance of the initial
five-year marketing period. In addition, the aggregate amount
that Banco Itaú would be obligated to pay AOLA in the event
of a termination of the agreement prior to March 24, 2006
has been reduced from approximately $158.0 million to
approximately $70.0 million.

As there are potential specific payments related
to performance targets in the first five years of the agreement,
AOLA is expensing $164.8 million of the cost on a
straight-line basis over that period, based on the original
valuation of the penalties. AOLA will expense the remaining
balance of the cost, $88.8 million, on a straight-line
basis over the ten-year term of the agreement. The amortization
of the unearned service related to the Banco Itaú strategic
alliance amounted to $41.8 million for the years ended
December 31, 2002 and 2001 and $21.1 million for the
year ended December 31, 2000. This expense is included in
the accompanying consolidated statements of operations as part
of sales and marketing expenses. The amortization period was not
changed as a result of the revisions made to the marketing
agreement with Banco Itaú.

The AOL
Warrant

On August 7, 2000, the Company issued a
warrant to AOL to purchase 16,541,250 shares in any combination
of its series B preferred, class A common or class B common
stock at a per share exercise price equal to the initial public
offering price of $8.00 per share. The warrant is immediately
exercisable and has a ten-year term. The number of shares
issuable under the warrant may be increased if AOL or the
Cisneros Group admits one or more strategic stockholders. No
other warrants are outstanding.



| |                  
| | -----------------
| | Stock Option Plan

In July 2000, AOLAs board of directors and
shareholders adopted AOLs 2000 Stock Option Plan (the
Stock Plan). Under the Stock Plan, AOLA may grant
incentive stock options and non-qualified stock options to its
employees, consultants, and directors at fair market value at
the date of grant. The options generally vest 25% per year over
four years and have a maximum term often years. A total of

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##### Table of Contents



AMERICA ONLINE LATIN AMERICA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002


13,208,333 shares of class A common stock were
initially authorized for grant under the Stock Plan. The number
of shares available for issuance under the Stock Plan was
increased, effective as of March 2001, to a total number of
17,808,333 shares of class A common stock. Stockholder approval
was not sought for this increase, although AOLAs
Compensation Committee and Board of Directors approved it. The
number of shares available for issuance under the plan was
increased a third time to 22,808,333 shares of class A common
stock in July 2002. Stockholder approval was obtained for this
increase. Stock options granted to consultants are accounted for
based on their fair value. The activity in AOLAs stock
options for the years ended December 31, 2002 and
December 31, 2001 is set forth below:

|                                   |                       |                    |            |                   |           |               |      |                  |      |         |            |            |           |   |      |      |      |  |            |          |            |   |      |      |      | 
|---------------------------------- | --------------------- | ------------------ | ---------- | ----------------- | --------- | ------------- | ---- | ---------------- | ---- | ------- | ---------- | ---------- | --------- | - | ---- | ---- | ---- |  | ---------- | -------- | ---------- | - | ---- | ---- | ---- | 
|                                   |                       |                    |            |                  
|                                   |                       | Year Ended         |            | Six Months Ended 
|                                   |                       |                    |            | December 31, 2000
|                                   |                       |                    |            |                   |           |              
|                                   |                       | December 31, 2002  |            | December 31, 2001 |           |               |      | Weighted        
|                                   |                       |                    |            |                   |           | Number of     |      | Average         
|                                   |                       | Number of          |            | Weighted Average  |           | Number of     |      | Weighted Average |      | Stock   |            | Exercise  
|                                   |                       | Stock Options      |            | Exercise Price    |           | Stock Options |      | Exercise Price   |      | Options |            | Price     
|                                   |                       |                    |            |                   |           |               |      |                  |      |         |            |           
|Balance at the beginning of period |                       |                    | 15,850,584 |                   |           | $             | 6.14 |                  |      |         | 10,338,855 |            |           | $ | 7.70 |      |      |  |           |          |            |   |     |     
|                                   | Options granted       |                    |            |                   |           |               |      |                  |      |         |            |            |           |   |      |      |      |  |            |          |            |   |      |      |     
|                                   |                       | At market price    |            |                   | 3,348,242 |               |      | $                | 1.90 |         |            |            | 7,065,480 |   |      | $    | 3.87 |  |            |          | 10,955,155 |   |      | $    | 7.73 | 
|                                   |                       | Below market price |            |                   |          |               |      |                  |     |         |            |            | 250,000   |   |      | $    | 2.72 |  |            |          | 31,250     |   |      | $    | 0.01 | 
|                                   |                       |                    |            |                   |           |               |      |                  |      |         |            |            |           |   |      |      |      |  |            |          |            |   |      |     
|                                   |                       |                    | 3,201,352  |                   |           | $             | 1.90 |                  |      |         | 7,315,480  |            |           | $ | 3.85 |      |      |  | 10,986,405 |          |            | $ | 7.73 |     
|                                   | Options exercised     |                    |            | (15,351           | )         |               | $    | 2.72             |      |         |            |           |           |   |      |     |      |  |            |         |            |   |      |     |     
|                                   | Options forfeited     |                    |            | (4,109,678        | )         |               | $    | 6.13             |      |         |            | (1,803,751 | )         |   | $    | 5.95 |      |  |            | (527,440 | )          |   | $    | 8.01 |     
|                                   |                       |                    |            |                   |           |               |      |                  |      |         |            |            |           |   |      |      |      |  |            |          |            |   |      |     
|Balance at the end of period       |                       |                    | 15,073,797 |                   |           | $             | 5.24 |                  |      |         | 15,975,064 |            |           | $ | 6.14 |      |      |  | 10,458,965 |          |            | $ | 7.70 |     
|                                   |                       |                    |            |                   |           |               |      |                  |      |         |            |            |           |   |      |      |      |  |            |          |            |   |      |     
|                                   | Weighted average      |                    |            |                   |           |               |      |                  |      |         |            |            |           |   |      |      |      |  |            |          |            |   |      |      |     
|                                   | fair value of options |                    |            |                   |           |               |      |                  |      |         |            |            |           |   |      |      |      |  |            |          |            |   |      |      |     
|                                   | granted at:           |                    |            |                   |           |               |      |                  |      |         |            |            |           |   |      |      |      |  |            |          |            |   |      |      |     
|                                   | Market price          |                    | $          | 0.88              |           |               |      |                  |      |         | $          | 1.88       |           |   |      |      |      |  | $          | 3.27     |            |   |      |      |     
|                                   |                       |                    |            |                   |           |               |      |                  |      |         |            |            |           |   |      |      |      |  |            |          |            |   |      |     
|                                   | Below market price    |                    | $          |                  |           |               |      |                  |      |         | $          | 4.79       |           |   |      |      |      |  | $          | 7.99     |            |   |      |      |     
|                                   |                       |                    |            |                   |           |               |      |                  |      |         |            |            |           |   |      |      |      |  |            |          |            |   |      |     

The following table summarizes the range and
weighted average exercise prices and the weighed average
remaining contractual life of the options outstanding at
December 31, 2002:

Outstanding and Exercisable by Price
Range

As of 12/31/2002


|                |  |             |  |                     |            |                     |  |                  |     |                |  |   |      |  |  |  |           |  |  |   |      | 
|--------------- |  | ----------- |  | ------------------- | ---------- | ------------------- |  | ---------------- | --- | -------------- |  | - | ---- |  |  |  | --------- |  |  | - | ---- | 
|                |  |             |  |                     |            |                    
|                |  |             |  | Options Outstanding |            | Options Exercisable
|                |  |             |  |                     |            |                    
|                |  |             |  | Number              |            | Weighted Average    |  |                  |     |               
|                |  | Outstanding |  | Remaining           |            | Weighted            |  | Number           |     | Weighted      
|Range of        |  | As of       |  | Contractual Life    |            | Average             |  | Exercisable      |     | Average       
|Exercise Prices |  | 12/31/2002  |  | (in Years)          |            | Exercise Price      |  | As of 12/31/2002 |     | Exercise Price
|                |  |             |  |                     |            |                     |  |                  |     |               
|$0.01           |  | $1.89       |  |                     | 1,049,289  |                     |  |                  | 9.4 |                |  | $ | 1.11 |  |  |  | 31,250    |  |  | $ | 0.01 | 
|$2.03           |  | $4.16       |  |                     | 5,522,334  |                     |  |                  | 8.5 |                |  | $ | 2.56 |  |  |  | 884,335   |  |  | $ | 2.78 | 
|$4.25           |  | $6.00       |  |                     | 1,423,750  |                     |  |                  | 8.2 |                |  | $ | 5.37 |  |  |  | 500,322   |  |  | $ | 5.40 | 
|$6.06           |  | $8.00       |  |                     | 1,375,284  |                     |  |                  | 8.0 |                |  | $ | 7.23 |  |  |  | 578,370   |  |  | $ | 7.28 | 
|$8.07           |  | $9.44       |  |                     | 5,703,140  |                     |  |                  | 7.6 |                |  | $ | 8.01 |  |  |  | 3,363,385 |  |  | $ | 8.00 | 
|$0.01           |  | $9.44       |  |                     | 15,073,797 |                     |  |                  | 8.2 |                |  | $ | 5.21 |  |  |  | 5,357,662 |  |  | $ | 6.77 | 
|                |  |             |  |                     |            |                     |  |                  |     |                |  |   |      |  |  |  |           |  |  |   |      | 

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##### Table of Contents



AMERICA ONLINE LATIN AMERICA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002


Note 5  Computation of Loss
per Common Share:

The calculation of basic and diluted loss per
common share for the years ended December 31, 2002 and 2001
and the six months ended December 31, 2000 is shown below
(in thousands):

|                                                         |  |              |          |            |  |                   |          |   |  |   |          |  
|-------------------------------------------------------- |  | ------------ | -------- | ---------- |  | ----------------- | -------- | - |  | - | -------- | -
|                                                         |  |              |          |           
|                                                         |  | Year Ended   |          |           
|                                                         |  | December 31, |          | Six Months
|                                                         |  |              |          | Ended     
|                                                         |  | 2002         |          | 2001       |  | December 31, 2000
|                                                         |  |              |          |            |  |                  
|Net loss                                                 |  | $            | (161,867 | )          |  | $                 | (290,315 | ) |  | $ | (199,911 | )
|Less: Dividends on Series B and C preferred
    shares   |  |              | 18,724   |            |  |                   | 17,005   |   |  |   | 5,711    |  
|                                                         |  |              |          |            |  |                   |          |   |  |   |          |  
|Net loss applicable to common stockholders               |  |              | (180,591 | )          |  |                   | (307,320 | ) |  |   | (205,622 | )
|Weighted average number of common shares
    outstanding |  |              | 67,068   |            |  |                   | 66,018   |   |  |   | 48,496   |  
|                                                         |  |              |          |            |  |                   |          |   |  |   |          |  
|Loss per common share, basic and diluted                 |  | $            | (2.69    | )          |  | $                 | (4.66    | ) |  | $ | (4.24    | )
|                                                         |  |              |          |            |  |                   |          |   |  |   |          |  

The loss per share does not include any accretion
to liquidation value of AOLAs series B and C
preferred stock since AOLA has the option of redeeming the
series B and series C preferred stock in common stock
rather than cash. Additionally, AOLA has the intention and
unconditional right to redeem the preferred stock by issuing
common stock. There is no difference between AOLAs basic
and diluted loss per share since the effect of any contingently
issuable common stock on loss per share is anti-dilutive.

Potential anti-dilutive securities for the year
ended December 31, 2002 and the year ended
December 31, 2001 are set forth on the table below:

Potential Anti-dilutive Securities
Outstanding

|                              |  |              |             |              |  |      |             |  |  |  |             | 
|----------------------------- |  | ------------ | ----------- | ------------ |  | ---- | ----------- |  |  |  | ----------- | 
|                              |  |              |             |             
|                              |  | As of        |             | Six Months  
|                              |  | December 31, |             | Ended       
|                              |  |              |             | December 31,
|                              |  | 2002         |             | 2001         |  | 2000
|                              |  |              |             |              |  |     
|Series B Preferred Stock      |  |              | 126,876,099 |              |  |      | 116,010,456 |  |  |  | 101,858,334 | 
|Series C Preferred Stock      |  |              | 111,413,994 |              |  |      | 111,413,994 |  |  |  | 97,803,960  | 
|AOL Warrant                   |  |              | 16,541,250  |              |  |      | 16,541,250  |  |  |  | 16,541,250  | 
|AOLTW Senior Convertible Note |  |              | 44,150,105  |              |  |      |            |  |  |  |            | 
|Stock Options                 |  |              | 15,888,794  |              |  |      | 15,834,257  |  |  |  | 10,419,425  | 
|                              |  |              |             |              |  |      |             |  |  |  |             | 
|                              |  |              | 314,870,242 |              |  |      | 259,799,957 |  |  |  | 226,622,969 | 
|                              |  |              |             |              |  |      |             |  |  |  |             | 

Note 6  Segment
Information



| |                          
| | -------------------------
| | Latin American Operations

AOLA principally derives its revenues from
operations in Latin America. Social, political and economic
conditions in Latin America are volatile. This volatility could
make it difficult for AOLA to develop its business, generate
revenues or achieve or sustain profitability. Historically,
volatility has been caused by currency devaluations, significant
governmental influence over many aspects of local economies,
political and economic instability, unexpected changes in
regulatory requirements, social unrest or violence, slow or
negative economic growth, imposition of trade barriers, and wage
and price controls. Most or all of these factors were
significant factors impacting AOLAs business during the
fiscal years 2002, 2001 and 2000 and have occurred at various
times over the last two decades in the Latin American markets in
which AOLA operates, including Brazil, Mexico and Argentina.
AOLA has no control over these matters.

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##### Table of Contents



AMERICA ONLINE LATIN AMERICA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002


Social, political and economic conditions may
inhibit online services and Internet use, create uncertainty in
AOLAs operating climate and cause advertisers to reduce
their advertising spending, all of which may adversely impact
AOLAs business.

Latin America has also experienced significant
currency fluctuations in recent years. Since AOLAs
consolidated cash flows from operations are generated primarily
in the local currencies of the countries in which it operates,
AOLA is subject to the effects of fluctuations in the value of
those currencies. In January 2002, the Argentinas Congress
passed an emergency legislation that changed its local currency
exchange rate policy in relation to the U.S. dollar, allowing
for the end of the one-to-one peg of the U.S. dollar. As a
result, the local currency weakened in value in relation to the
U.S. dollar by approximately 72% during 2002. As a result of
local political uncertainty and increased risk aversion by
investors, the Brazilian real depreciated by 28% during the year
ended December 31, 2002. The Mexican peso devalued by 9%
over the same period.



| |         
| | --------
| | Segments

AOLA considers markets in which it has launched
its AOLA services as operational segments and reports its
operations on a country-by-country basis. In determining
operating segments, AOLA internally reviewed the current
management structure that reports to the chief operating
decision-maker (CODM) and analyzed the reports
received by the CODM in order to allocate resources and measure
performance.

Each of AOLAs operating segments derives
its revenues from interactive services through subscription
revenues and advertising and other revenues. Interactive
services consist primarily of the delivery of the AOLA country
services. The accounting policies of the reportable segments are
the same as those described in the summary of significant
accounting policies. AOLA launched its first country operations
in December 1999 in Brazil. In July 2000, it launched its AOLA
country service in Mexico, launched its AOLA country service in
Argentina in August 2000, and began marketing the AOL-branded
service in Puerto Rico in December 2000.

For purposes of the segment presentation below,
amounts included in revenues under the corporate and other
segment represent amounts related to the U.S. Hispanics channel
which AOLA programs for America Online and to revenues for
CompuServe Classic in countries where the AOLA country services
are not present. If an AOLA country service existed in a
particular geography, results from CompuServe are included in
that operating segment. The CompuServe Classic service was
terminated in the first quarter of 2002. No single customer
accounted for 10% or more of AOLAs total revenues for any
of the periods presented.

F-26



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##### Table of Contents



AMERICA ONLINE LATIN AMERICA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002


The following table provides a reconciliation of
reportable segment revenues to the consolidated financial
statement totals and presents revenues by service type (in
thousands):

|                    |                       |                     |        |              |        |          |        |      |        |   |        |   |       |   |       |   |       | 
|------------------- | --------------------- | ------------------- | ------ | ------------ | ------ | -------- | ------ | ---- | ------ | - | ------ | - | ----- | - | ----- | - | ----- | 
|                    |                       |                     |        |              |        |         
|                    |                       | Year Ended          |        | Six Months   |        | Year    
|                    |                       | December 31,        |        | Ended        |        | Ended   
|                    |                       |                     |        | December 31, |        | June 30,
|                    |                       | 2002                |        | 2001         |        | 2000     |        | 2000
|                    |                       |                     |        |              |        |          |        |     
|Revenues Breakdown: |                       |                     |        |              |        |          |        |      |        |   |        |   |       |   |       |  
|                    | Subscriptions         |                     |        |              |        |          |        |      |        |   |        |   |       |   |       |   |      
|                    |                       | Brazil              |        | $            | 25,229 |          |        | $    | 17,853 |   |        | $ | 4,940 |   |       | $ | 2,154 | 
|                    |                       | Mexico              |        |              | 24,906 |          |        |      | 19,579 |   |        |   | 2,379 |   |       |   |      | 
|                    |                       | Argentina           |        |              | 1,856  |          |        |      | 7,389  |   |        |   | 420   |   |       |   |      | 
|                    |                       | Puerto Rico         |        |              | 10,855 |          |        |      | 4,724  |   |        |   | 311   |   |       |   |      | 
|                    |                       | Corporate and other |        |              | 152    |          |        |      | 373    |   |        |   |      |   |       |   | 3,694 | 
|                    |                       |                     |        |              |        |          |        |      |        |   |        |   |       |   |       |  
|                    |                       |                     | 62,998 |              |        |          | 49,918 |      |        |   | 8,050  |   |       |   | 5,848 |  
|                    | Advertising and other |                     |        |              |        |          |        |      |        |   |        |   |       |   |       |   |      
|                    |                       | Brazil              |        |              | 5,526  |          |        |      | 8,870  |   |        |   | 2,715 |   |       |   | 3,292 | 
|                    |                       | Mexico              |        |              | 2,258  |          |        |      | 5,557  |   |        |   | 996   |   |       |   |      | 
|                    |                       | Argentina           |        |              | 445    |          |        |      | 1,766  |   |        |   | 665   |   |       |   |      | 
|                    |                       | Puerto Rico         |        |              | 519    |          |        |      | 121    |   |        |   |      |   |       |   |      | 
|                    |                       | Corporate and other |        |              | 361    |          |        |      | 211    |   |        |   | 47    |   |       |   | 60    | 
|                    |                       |                     |        |              |        |          |        |      |        |   |        |   |       |   |       |  
|                    |                       |                     | 9,109  |              |        |          | 16,525 |      |        |   | 4,423  |   |       |   | 3,352 |  
|                    | Total                 |                     |        |              |        |          |        |      |        |   |        |   |       |   |       |   |      
|                    |                       | Brazil              |        |              | 30,755 |          |        |      | 26,723 |   |        |   | 7,655 |   |       |   | 5,446 | 
|                    |                       | Mexico              |        |              | 27,164 |          |        |      | 25,136 |   |        |   | 3,375 |   |       |   |      | 
|                    |                       | Argentina           |        |              | 2,301  |          |        |      | 9,155  |   |        |   | 1,085 |   |       |   |      | 
|                    |                       | Puerto Rico         |        |              | 11,374 |          |        |      | 4,845  |   |        |   | 358   |   |       |   |      | 
|                    |                       | Corporate and other |        |              | 513    |          |        |      | 584    |   |        |   |      |   |       |   | 3,754 | 
|                    |                       |                     |        |              |        |          |        |      |        |   |        |   |       |   |       |  
|                    |                       | $                   | 72,107 |              |        | $        | 66,443 |      |        | $ | 12,473 |   |       | $ | 9,200 |  
|                    |                       |                     |        |              |        |          |        |      |        |   |        |   |       |   |       |  

The following table provides a reconciliation of
reportable segment loss or profit from operations to the
consolidated financial statement totals (in thousands):

|                     |                     |              |         |              |   |          |          |          |   |   |          |          |   |  |         |         |  
|-------------------- | ------------------- | ------------ | ------- | ------------ | - | -------- | -------- | -------- | - | - | -------- | -------- | - |  | ------- | ------- | -
|                     |                     |              |         |              |   |         
|                     |                     | Year Ended   |         | Six Months   |   | Year    
|                     |                     | December 31, |         | Ended        |   | Ended   
|                     |                     |              |         | December 31, |   | June 30,
|                     |                     | 2002         |         | 2001         |   | 2000     |          | 2000    
|                     |                     |              |         |              |   |          |          |         
|Loss from operations |                     |              |         |              |   |          |          |          |   |   |          |          |   |  |         |        
|                     | Brazil              |              | $       | (95,447      | ) |          | $        | (147,731 | ) |   | $        | (101,682 | ) |  | $       | (82,477 | )
|                     | Mexico              |              |         | (37,268      | ) |          |          | (71,550  | ) |   |          | (50,221  | ) |  |         |        |  
|                     | Argentina           |              |         | (3,141       | ) |          |          | (39,663  | ) |   |          | (34,565  | ) |  |         |        |  
|                     | Puerto Rico         |              |         | 956          |   |          |          | (7,455   | ) |   |          | (612     | ) |  |         | (5,652  | )
|                     | Corporate and other |              |         | (21,729      | ) |          |          | (28,669  | ) |   |          | (13,035  | ) |  |         | (11,795 | )
|                     |                     |              |         |              |   |          |          |          |   |   |          |          |   |  |         |        
|                     |                     | $            | 156,629 | )            |   | $        | (295,068 | )        |   | $ | (200,115 | )        |   |  | (99,924 | )      
|                     |                     |              |         |              |   |          |          |          |   |   |          |          |   |  |         |        

F-27



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##### Table of Contents



AMERICA ONLINE LATIN AMERICA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002


The following table presents a reconciliation of
reportable segment assets and long-lived assets to the
consolidated financial statement totals (in thousands):

|                    |  |              |         |              |  |   |        | 
|------------------- |  | ------------ | ------- | ------------ |  | - | ------ | 
|                    |  | December 31, |         | December 31,
|                    |  | 2002         |         | 2001        
|                    |  |              |         |             
|Total assets        |  |              |         |              |  |   |        | 
|Brazil              |  | $            | 6,818   |              |  | $ | 14,376 | 
|Mexico              |  |              | 7,035   |              |  |   | 11,345 | 
|Argentina           |  |              | 3,959   |              |  |   | 9,262  | 
|Puerto Rico         |  |              | 605     |              |  |   | 303    | 
|Corporate and other |  |              | 81,857  |              |  |   | 49,098 | 
|                    |  |              |         |              |  |   |        | 
|                    |  | $            | 100,274 |              |  | $ | 84,384 | 
|                    |  |              |         |              |  |   |        | 
|Long-lived assets   |  |              |         |              |  |   |        | 
|Brazil              |  | $            | 2,528   |              |  | $ | 4,756  | 
|Mexico              |  |              | 1,304   |              |  |   | 2,119  | 
|Argentina           |  |              | 304     |              |  |   | 958    | 
|Puerto Rico         |  |              | 254     |              |  |   | 56     | 
|Corporate and other |  |              | 2,593   |              |  |   | 4,069  | 
|                    |  |              |         |              |  |   |        | 
|                    |  | $            | 6,983   |              |  | $ | 11,958 | 
|                    |  |              |         |              |  |   |        | 

Depreciation and amortization expense for the
year ended December 31, 2002 amounted to $5.0 million,
as compared to $4.9 million for the year ended
December 31, 2001. By segment, depreciation and
amortization was $2.6 million, $1.2 million, $352,000
and $794,000 in Brazil, Mexico, Argentina and in corporate and
other, respectively, during the year ended December 31,
2002. Segment depreciation and

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AMERICA ONLINE LATIN AMERICA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002


amortization was $1.6 million,
$1.1 million and $0.5 in Brazil, Mexico and Argentina,
respectively, together with $1.3 million in the United
States and Puerto Rico for the year ended December 31, 2001.

|                              |  |              |       |              |  |          |       |      |  |   |       |  |  |   |       | 
|----------------------------- |  | ------------ | ----- | ------------ |  | -------- | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|                              |  |              |       |              |  |         
|                              |  | Year Ended   |       | Six Months   |  | Year    
|                              |  | December 31, |       | Ended        |  | Ended   
|                              |  |              |       | December 31, |  | June 30,
|                              |  | 2002         |       | 2001         |  | 2000     |       | 2000
|                              |  |              |       |              |  |          |       |     
|Depreciation and amortization |  |              |       |              |  |          |       |      |  |   |       |  |  |   |       | 
|Brazil                        |  | $            | 2,580 |              |  | $        | 1,598 |      |  | $ | 440   |  |  | $ | 435   | 
|Mexico                        |  |              | 1,222 |              |  |          | 1,090 |      |  |   | 733   |  |  |   | 242   | 
|Argentina                     |  |              | 352   |              |  |          | 451   |      |  |   | 244   |  |  |   | 129   | 
|Puerto Rico                   |  |              | 80    |              |  |          | 124   |      |  |   |      |  |  |   |      | 
|Corporate and other           |  |              | 794   |              |  |          | 1,657 |      |  |   | 128   |  |  |   | 44    | 
|                              |  |              |       |              |  |          |       |      |  |   |       |  |  |   |       | 
|                              |  | $            | 5,028 |              |  | $        | 4,920 |      |  | $ | 1,545 |  |  | $ | 850   | 
|                              |  |              |       |              |  |          |       |      |  |   |       |  |  |   |       | 
|Capital spending              |  |              |       |              |  |          |       |      |  |   |       |  |  |   |       | 
|Brazil                        |  | $            | 1,059 |              |  | $        | 1,955 |      |  | $ | 2,348 |  |  | $ | 3,887 | 
|Mexico                        |  |              | 249   |              |  |          | 217   |      |  |   | 300   |  |  |   | 56    | 
|Argentina                     |  |              | 7     |              |  |          | 193   |      |  |   | 432   |  |  |   | 1,953 | 
|Puerto Rico                   |  |              | 133   |              |  |          | 61    |      |  |   | 5     |  |  |   |      | 
|Corporate and other           |  |              | 578   |              |  |          | 3,572 |      |  |   | 1,333 |  |  |   | 3,233 | 
|                              |  |              |       |              |  |          |       |      |  |   |       |  |  |   |       | 
|                              |  | $            | 2,026 |              |  | $        | 5,998 |      |  | $ | 4,418 |  |  | $ | 9,129 | 
|                              |  |              |       |              |  |          |       |      |  |   |       |  |  |   |       | 

Expenditures for long-lived assets for the year
ended December 31, 2002 totaled $2.0 million, and was
comprised of $1.1 million in Brazil, $249,000 in Mexico,
$7,000 in Argentina and $711,000 in the United States and Puerto
Rico. For the year ended December 31, 2001, expenditures
for long-lived assets were $2.0 million, $217,000, and
$193,000 in Brazil, Mexico and Argentina, respectively, and the
remainder of $3.6 million in the United States and Puerto
Rico.

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AMERICA ONLINE LATIN AMERICA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002


Note 7  Property and Equipment
and Product Development Costs

Property and
Equipment

Property and equipment and product development
costs are stated at cost less accumulated depreciation and
amortization as follows (in thousands):

|                                               |                                                 |                                |       |              |  |      |        |        |       |   |        |        |        | 
|---------------------------------------------- | ----------------------------------------------- | ------------------------------ | ----- | ------------ |  | ---- | ------ | ------ | ----- | - | ------ | ------ | ------ | 
|                                               |                                                 |                                |       |             
|                                               |                                                 |                                |       | December 31,
|                                               |                                                 | Useful Life                    |       |             
|                                               |                                                 | (years)                        |       | 2002         |  | 2001
|                                               |                                                 |                                |       |              |  |     
|Leasehold and network improvements             |                                                 |                                | 4     |              |  | $    | 3,771  |        |       | $ | 5,585  |       
|Furniture and fixtures                         |                                                 |                                | 5     |              |  |      | 2,595  |        |       |   | 2,919  |       
|Equipment and automobiles                      |                                                 |                                | 5     |              |  |      | 1,213  |        |       |   | 1,661  |       
|Computer equipment and internal software       |                                                 |                                | 2 - 5 |              |  |      | 7,598  |        |       |   | 7,343  |       
|                                               |                                                 |                                |       |              |  |      |        |        |       |   |        |       
|                                               |                                                 |                                |       |              |  |      | 15,177 |        |       |   | 17,508 |       
|                                               | Less: accumulated depreciation and amortization |                                |       |              |  |      |        | (8,194 | )     |   |        | (5,550 | )     
|                                               |                                                 |                                |       |              |  |      |        |        |       |   |        |       
|                                               |                                                 | Property and equipment, net    |       |              |  |      |        | $      | 6,983 |   |        | $      | 11,958 | 
|                                               |                                                 |                                |       |              |  |      |        |        |       |   |        |       
|Capitalized development and localization costs |                                                 |                                |       |              |  | $    | 1,112  |        |       | $ | 2,141  |       
|                                               | Less: accumulated depreciation and amortization |                                |       |              |  |      |        | (54    | )     |   |        | (1,153 | )     
|                                               |                                                 |                                |       |              |  |      |        |        |       |   |        |       
|                                               |                                                 | Product development costs, net |       |              |  |      |        | $      | 1,058 |   |        | $      | 988    | 
|                                               |                                                 |                                |       |              |  |      |        |        |       |   |        |       

Depreciation and amortization expense of property
and equipment for the years ended December 31, 2002 and
2001 were $5.1 million and $4.9 million, respectively.

Note 8  Other Accrued Expenses
and Liabilities

At December 31, 2002 and 2001, the
components of other accrued expenses and liabilities were as
follows (in thousands):

|                          |  |              |       |      |  |   |        | 
|------------------------- |  | ------------ | ----- | ---- |  | - | ------ | 
|                          |  |             
|                          |  | December 31,
|                          |  |             
|                          |  | 2002         |       | 2001
|                          |  |              |       |     
|Telecommunications        |  | $            | 2,796 |      |  | $ | 5,313  | 
|Marketing and Advertising |  |              | 2,380 |      |  |   | 5,592  | 
|Member Services           |  |              | 818   |      |  |   | 976    | 
|Other                     |  |              | 1,375 |      |  |   | 2,689  | 
|                          |  |              |       |      |  |   |        | 
|Totals                    |  | $            | 7,369 |      |  | $ | 14,570 | 
|                          |  |              |       |      |  |   |        | 

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##### Table of Contents



AMERICA ONLINE LATIN AMERICA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002


Note 9  Income Taxes

The United States and foreign components of loss
from continuing operations before income taxes and dividends on
the series B and series C preferred stock are as follows:

|              |  |                         |          |              |  |            |          |      |  |   |          |   |  |   |         |  
|------------- |  | ----------------------- | -------- | ------------ |  | ---------- | -------- | ---- |  | - | -------- | - |  | - | ------- | -
|              |  |                         |          |              |  | Six Months |          |     
|              |  |                         |          | Ended        |  |           
|              |  | Year Ended December 31, |          | December 31, |  | Year Ended
|              |  |                         |          |              |  | June 30,  
|              |  | 2002                    |          | 2001         |  | 2000       |          | 2000
|              |  |                         |          |              |  |            |          |     
|              |  |                        
|              |  | (In thousands)         
|United States |  | $                       | (22,756  | )            |  | $          | (36,407  | )    |  | $ | (10,365  | ) |  | $ | (85,658 | )
|Foreign       |  |                         | (139,111 | )            |  |            | (253,908 | )    |  |   | (189,546 | ) |  |   | (12,255 | )
|              |  |                         |          |              |  |            |          |      |  |   |          |   |  |   |         |  
|              |  | $                       | (161,867 | )            |  | $          | (290,315 | )    |  | $ | (199,911 | ) |  | $ | (97,913 | )
|              |  |                         |          |              |  |            |          |      |  |   |          |   |  |   |         |  

The components of the provision for income taxes
are as follows:

|         |         |                |    |              |  |            |   |      |  |   |   |   |  |   |   |   | 
|-------- | ------- | -------------- | -- | ------------ |  | ---------- | - | ---- |  | - | - | - |  | - | - | - | 
|         |         |                |    | Six Months   |  |           
|         |         | Year Ended     |    | Ended        |  |           
|         |         | December 31,   |    | December 31, |  | Year Ended
|         |         |                |    |              |  | June 30,  
|         |         | 2002           |    | 2001         |  | 2000       |   | 2000
|         |         |                |    |              |  |            |   |     
|         |         |               
|         |         | (In thousands)
|Current: |         |                |    |              |  |            |   |      |  |   |   |   |  |   |   |  
|         | Federal |                | $  |             |  |            | $ |     |  |   | $ |  |  |   | $ |  | 
|         | Foreign |                |    | 75           |  |            |   |     |  |   |   |  |  |   |   |  | 
|         | State   |                |    |             |  |            |   |     |  |   |   |  |  |   |   |  | 
|         |         |                |    |              |  |            |   |      |  |   |   |   |  |   |   |  
|         |         |                | 75 |              |  |            |  |      |  |   |  |   |  |   |  |  
|Deferred |         |                |   |              |  |            |  |      |  |   |  |   |  |   |  |  
|         |         |                |    |              |  |            |   |      |  |   |   |   |  |   |   |  
|         |         | $              | 75 |              |  | $          |  |      |  | $ |  |   |  | $ |  |  
|         |         |                |    |              |  |            |   |      |  |   |   |   |  |   |   |  

For U.S. tax purposes, elections were made to
treat foreign operating entities as branches as those
subsidiaries were formed. AOLA acquired the foreign operating
entities on August 7, 2000. Therefore, the consolidated
operating losses arising in periods after August 7, 2000
are available for carry forward by AOLA. Net operating loss
carryforwards totaling $633.3 million at December 31, 2002
are being carried forward and are available to reduce future
taxable income. These net operating losses expire as follows:
$187.0 million in 2020; $284.3 million in 2021 and
$162.0 million in 2022.

Tax losses generated by AOLA in foreign
jurisdictions will be available to be carried forward against
future foreign taxable income, subject to local tax
restrictions, if any. AOLAs operations in Brazil, Mexico,
Spain, Puerto Rico and Argentina generated net operating loss
carryforwards totaling $376.0 million at December 31,
2002, which are being carried forward and are available to
reduce future taxable income of certain foreign tax
jurisdictions. At December 31, 2002, AOLAs net
operating loss carryforwards (by operating country) expire as
follows (in thousands):

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##### Table of Contents



AMERICA ONLINE LATIN AMERICA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002


|                        |  |           |        |        |  |       |       |        |  |        |        |       |  |   |         |  |  |   |         |  |  |   |         | 
|----------------------- |  | --------- | ------ | ------ |  | ----- | ----- | ------ |  | ------ | ------ | ----- |  | - | ------- |  |  | - | ------- |  |  | - | ------- | 
|                        |  |           |        | Puerto |  |       |       |        |  |        |        |      
|Year Ended December 31, |  | Argentina |        | Rico   |  | Spain |       | Mexico |  | Brazil |        | Total
|                        |  |           |        |        |  |       |       |        |  |        |        |      
|2005                    |  | $         | 217    |        |  | $     |      |        |  | $      |       |       |  | $ |        |  |  | $ |        |  |  | $ | 21      | 
|2006                    |  |           | 15,517 |        |  |       |      |        |  |        |       |       |  |   |        |  |  |   |        |  |  |   | 15,517  | 
|2007                    |  |           | 5,320  |        |  |       | 73    |        |  |        |       |       |  |   |        |  |  |   |        |  |  |   | 5,393   | 
|2008                    |  |           | 1,229  |        |  |       | 3,949 |        |  |        |       |       |  |   |        |  |  |   |        |  |  |   | 5,178   | 
|2009                    |  |           |       |        |  |       | 2,974 |        |  |        | 1,191  |       |  |   |        |  |  |   |        |  |  |   | 4,165   | 
|2010                    |  |           |       |        |  |       |      |        |  |        | 33,014 |       |  |   | 51,391  |  |  |   |        |  |  |   | 84,405  | 
|2011                    |  |           |       |        |  |       |      |        |  |        |       |       |  |   | 45,605  |  |  |   |        |  |  |   | 45,605  | 
|2012                    |  |           |       |        |  |       |      |        |  |        | 41     |       |  |   | 32,939  |  |  |   |        |  |  |   | 32,980  | 
|Indefinitely            |  |           |       |        |  |       |      |        |  |        |       |       |  |   |        |  |  |   | 182,573 |  |  |   | 182,573 | 
|                        |  |           |        |        |  |       |       |        |  |        |        |       |  |   |         |  |  |   |         |  |  |   |         | 
|                        |  | $         | 22,283 |        |  | $     | 6,996 |        |  | $      | 34,246 |       |  | $ | 129,935 |  |  | $ | 182,573 |  |  | $ | 376,033 | 
|                        |  |           |        |        |  |       |       |        |  |        |        |       |  |   |         |  |  |   |         |  |  |   |         | 

Deferred income taxes reflect the net tax effect
of temporary differences between the carrying amounts of assets
and liabilities for financial reporting and the amounts used for
income tax purposes. The significant components of AOLAs
deferred tax assets and liabilities at December 31, 2002
and 2001 consisted of the following (in thousands):

|                     |                                  |              |          |         |  |   |          |         | 
|-------------------- | -------------------------------- | ------------ | -------- | ------- |  | - | -------- | ------- | 
|                     |                                  |             
|                     |                                  | December 31,
|                     |                                  |             
|                     |                                  | 2002         |          | 2001   
|                     |                                  |              |          |        
|Deferred tax assets: |                                  |              |          |         |  |   |          |        
|                     | Accounts receivable allowances   |              | $        | 240     |  |   | $        | 629     | 
|                     | Depreciation and amortization    |              |          | 2,671   |  |   |          | 3,228   | 
|                     | Loss on securities               |              |          | 1,423   |  |   |          | 1,396   | 
|                     | Deferred revenues                |              |          | 108     |  |   |          | 429     | 
|                     | Accrued expenses                 |              |          | 4,293   |  |   |          | 2,218   | 
|                     | Stock based compensation         |              |          | 264     |  |   |          | 210     | 
|                     | Net operating loss carryforwards |              |          | 269,328 |  |   |          | 215,195 | 
|                     |                                  |              |          |         |  |   |          |        
|                     |                                  |              | 278,327  |         |  |   | 223,305  |        
|Valuation allowance  |                                  |              | (278,327 | )       |  |   | (223,305 | )      
|                     |                                  |              |          |         |  |   |          |        
|                     |                                  | $            |         |         |  | $ |         |        
|                     |                                  |              |          |         |  |   |          |        

SFAS 109 requires a valuation allowance to
reduce the deferred tax assets reported if, based on the weight
of the evidence, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. After
consideration of all of the evidence, both positive and
negative, management has determined that a $278.3 million
and $223.3 million valuation allowance at December 31,
2002 and 2001, respectively, is necessary to reduce the deferred
tax assets to the amount that will more likely than not be
realized. The valuation allowance increased by approximately
$55.0 million during the year ended December 31, 2002
and approximately $140.2 million during the year ended
December 31, 2001 and by approximately $52.1 million
during the six months ended December 31, 2000. AOLAs
operations in Brazil, Mexico and Argentina generated deferred
tax assets of approximately $31 million from foreign net
operating losses relating to periods prior to the August 7,
2000 reorganization. The foreign deferred tax assets were fully
provided for with a valuation allowance. A reconciliation of
AOLAs income taxes to amounts calculated at the statutory
federal rate is as follows (in percentage).

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##### Table of Contents



AMERICA ONLINE LATIN AMERICA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002


|                        |                                                                                                   |              |        |              |  |      |        |      |  |  |       |      | 
|----------------------- | ------------------------------------------------------------------------------------------------- | ------------ | ------ | ------------ |  | ---- | ------ | ---- |  |  | ----- | ---- | 
|                        |                                                                                                   |              |        |             
|                        |                                                                                                   | Year Ended   |        | Six Months  
|                        |                                                                                                   | December 31, |        | Ended       
|                        |                                                                                                   |              |        | December 31,
|                        |                                                                                                   | 2002         |        | 2001         |  | 2000
|                        |                                                                                                   |              |        |              |  |     
|Federal statutory taxes |                                                                                                   |              | - 34.0 | %            |  |      | - 34.0 | %    |  |  | -34.0 | %   
|                        | State income taxes, net of federal tax benefit                                                    |              |        | -3.6         |  |      |        | -3.6 |  |  |       | -3.6 | 
|                        | Nondeductible items                                                                               |              |        | 0.4          |  |      |        | 0.1  |  |  |       | 0.0  | 
|                        | Dividends received deduction                                                                      |              |        | -0.1         |  |      |        | -0.3 |  |  |       | 0.0  | 
|                        | Change in valuation allowance                                                                     |              |        | 34.0         |  |      |        | 48.3 |  |  |       | 26.1 | 
|                        | Income nontaxable in US                                                                           |              |        | 0.0          |  |      |        | -8.4 |  |  |       | 8.4  | 
|                        | Income generated prior to the August 7, 2000
    reorganization and taxable to predecessor parent |              |        | 0.0          |  |      |        | -0.3 |  |  |       | 4.9  | 
|                        | Other                                                                                             |              |        | 3.3          |  |      |        | -1.9 |  |  |       | -1.8 | 
|                        |                                                                                                   |              |        |              |  |      |        |      |  |  |       |     
|                        |                                                                                                   |              | 0.0    | %            |  |      | 0.0    | %    |  |  | 0.0   | %   
|                        |                                                                                                   |              |        |              |  |      |        |      |  |  |       |     

NOTE 10  Commitments and
Contingencies



| |                                            
| | -------------------------------------------
| | Leases and Network Services
    Commitments

AOLA has entered into various facilities and
equipment operating leases, primarily under long-term operating
agreements, some of which contain renewal options. In addition,
AOLA has entered into third party telecommunications network
capacity contracts, under which it is committed to purchase a
minimum amount of network capacity or to pay a fixed minimum
cost for network capacity. AOLA records expense related to these
contracts up to the minimum commitments and expenses any
additional costs in the period that it is incurred. As of
December 31, 2002, future rental commitments and the fixed
minimum costs for network capacity commitments under these
contracts for future periods are summarized as follows (in
thousands):

|                                |  |        |       |         |  |       |        |  |  |   |        | 
|------------------------------- |  | ------ | ----- | ------- |  | ----- | ------ |  |  | - | ------ | 
|For the year ended December 31, |  | Leases |       | Network |  | Total
|                                |  |        |       |         |  |      
|2003                            |  | $      | 2,885 |         |  | $     | 15,027 |  |  | $ | 17,913 | 
|2004                            |  |        | 2,715 |         |  |       | 13,496 |  |  |   | 16,211 | 
|2005                            |  |        | 1,703 |         |  |       | 12,461 |  |  |   | 14,164 | 
|2006                            |  |        | 418   |         |  |       | 0      |  |  |   | 418    | 
|2007                            |  |        | 124   |         |  |       | 0      |  |  |   | 124    | 
|After 2008                      |  |        | 10    |         |  |       | 0      |  |  |   | 10     | 
|                                |  |        |       |         |  |       |        |  |  |   |        | 
|                                |  | $      | 7,855 |         |  | $     | 40,984 |  |  | $ | 48,839 | 
|                                |  |        |       |         |  |       |        |  |  |   |        | 

For the year ended December 31, 2002, rent
expense under operating leases totaled approximately
$22.3 million (including an impairment charge of
$0.9 million for leased space abandonment). For the year
ended December 31, 2001, rent expense under operating
leases totaled approximately $27.3 million (including a
one-time impairment charge of $1.5 million for leased space
abandonment). For the six months ending December 31, 2000,
rent expense under operating leases was approximately
$1.2 million. For the year ending June 30, 2000, rent
expense under operating leases was approximately
$1.9 million.

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##### Table of Contents



AMERICA ONLINE LATIN AMERICA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002


Legal Proceedings

From time to time, AOLA is subject to litigation
arising in the ordinary course of business, none of which
management believes will have a material impact on the
Companys results of operations or financial condition.

Note 11  Employee Savings
Plan

AOLA has a savings plan, which qualifies under
Section 401(k) of the Internal Revenue Code, covering all
regular employees based in its Fort Lauderdale headquarters or
in Virginia. AOLA contributes a maximum contribution of 4% of a
participants earnings. The cost of providing this benefit
amounted to $258,000 and $530,000 for the years ended
December 31, 2002 and 2001, respectively. This AOLA savings
plan was implemented during the 2001 fiscal year.

Note 12  Subsequent
Events



| |                                                    
| | ---------------------------------------------------
| | Conversion of Preferred Shares to Common
    Shares

In support of AOLAs effort to remain listed
on the NASDAQ SmallCap Market, on January 10 and
January 13, 2003, America Online and the Cisneros Group
converted an aggregate of 36,169,780 shares of series B
preferred stock and 31,895,292 shares of series C preferred
stock, respectively into shares of class A common stock. This
had the effect of increasing the number of shares of class A
common stock outstanding to 135,135,137. As a result of the
increased number of class A common shares outstanding, the
market value of the companys class A common stock was in
excess of the $35.0 million minimum market capitalization
requirement for continued listing on the NASDAQ SmallCap market.
Furthermore, because the Companys market capitalization
based on the closing bid price on January 13, 2003 was in
excess of $50.0 million, NASDAQ granted the company a
180-day extension to comply with the $1.00 per share minimum bid
price requirement. The Companys class A common stock now
must have a closing bid price of $1.00 per share for ten
consecutive days commencing no later than June 30, 2003. As
a result of this conversion, the Company had outstanding
90,706,319 shares of series B preferred stock, which is the
series owned by America Online and AOLTW, and 79,518,702 shares
of series C preferred stock, which is the series owned by the
Cisneros Group.



| |                                              
| | ---------------------------------------------
| | Marketing Agreement with McDonalds
    Brasil

In January 2003, AOLA entered into an agreement
to market the AOL Brasil country service in hundreds of
McDonalds restaurants in Brazil. Under the terms of the
agreement, the AOL Brasil country service will be promoted
through interactive on-site kiosks staffed by trained promoters.
Itaú Tech and Hewlett Packard Brasil are also participants
to this joint marketing effort. AOLA is expected to invest
approximately $7.0 million over the two-year term of this
agreement.



| |                                                                   
| | ------------------------------------------------------------------
| | Consolidation of Spanish language Member
    Services in Argentina

On February 17, 2003 AOLA consolidated its
Spanish-language member services activities into one call center
located in Argentina. As a result of this initiative,
Spanish-language member services for Mexico, Puerto Rico and
Argentina are handled from this centralized facility. This move
was undertaken in order to take advantage of economies of scale
and the low cost structure permitted by the recent devaluation
of the Argentine peso. As a result of this consolidation, AOLA
incurred a charge of approximately $600,000 in the first quarter
of 2003, primarily associated with the severance expense related
to the workforce reduction in Mexico.

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##### Table of Contents



AMERICA ONLINE LATIN AMERICA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002


Note 13  Quarterly Financial
Data (Unaudited)

The table below presents selected unaudited
quarterly information for the last 2 calendar years. In
managements opinion, all adjustments necessary to fairly
present the results of operations of such periods are reflected
therein.

(In thousands, except per share
data)

|                                             |  |               |         |          |  |               |         |              |  |       |         |   |  |   |         |   |  |   |          |  
|-------------------------------------------- |  | ------------- | ------- | -------- |  | ------------- | ------- | ------------ |  | ----- | ------- | - |  | - | ------- | - |  | - | -------- | -
|                                             |  |               |         |         
|                                             |  | Quarter Ended |         |         
|                                             |  |               |         |         
|                                             |  | March 30,     |         | June 30, |  | September 30, |         | December 31, |  | Total
|                                             |  |               |         |          |  |               |         |              |  |      
|Calendar year 2002                           |  |               |         |          |  |               |         |              |  |       |         |   |  |   |         |   |  |   |          |  
|Revenues                                     |  | $             | 18,161  |          |  | $             | 18,546  |              |  | $     | 17,557  |   |  | $ | 17,843  |   |  | $ | 72,107   |  
|Cost and expenses                            |  |               | 71,600  |          |  |               | 56,942  |              |  |       | 50,869  |   |  |   | 49,325  |   |  |   | 228,736  |  
|                                             |  |               |         |          |  |               |         |              |  |       |         |   |  |   |         |   |  |   |          |  
|Loss from operations                         |  |               | (53,439 | )        |  |               | (38,396 | )            |  |       | (33,312 | ) |  |   | (31,482 | ) |  |   | (156,629 | )
|Other income/(expense), net                  |  |               | 526     |          |  |               | (1,508  | )            |  |       | (1,902  | ) |  |   | (2,279  | ) |  |   | (5,163   | )
|                                             |  |               |         |          |  |               |         |              |  |       |         |   |  |   |         |   |  |   |          |  
|LOSS BEFORE INCOME TAXES                     |  |               | (52,913 | )        |  |               | (39,904 | )            |  |       | (35,214 | ) |  |   | (33,761 | ) |  |   | (161,792 | )
|Income taxes                                 |  |               |        |          |  |               |        |              |  |       | 24      |   |  |   | 51      |   |  |   | 75       |  
|                                             |  |               |         |          |  |               |         |              |  |       |         |   |  |   |         |   |  |   |          |  
|Net loss                                     |  |               | (52,913 | )        |  |               | (39,904 | )            |  |       | (35,238 | ) |  |   | (33,812 | ) |  |   | (161,867 | )
|Dividends on series B and C preferred shares |  |               | 4,651   |          |  |               | 4,651   |              |  |       | 4,653   |   |  |   | 4,769   |   |  |   | 18,724   |  
|                                             |  |               |         |          |  |               |         |              |  |       |         |   |  |   |         |   |  |   |          |  
|Net loss applicable to common stockholders   |  | $             | (57,564 | )        |  | $             | (44,555 | )            |  | $     | (39,891 | ) |  | $ | (38,581 | ) |  | $ | (180,591 | )
|                                             |  |               |         |          |  |               |         |              |  |       |         |   |  |   |         |   |  |   |          |  
|Basic and diluted loss per common share      |  | $             | (0.86   | )        |  | $             | (0.66   | )            |  | $     | (0.59   | ) |  | $ | (0.58   | ) |  | $ | (2.69    | )
|                                             |  |               |         |          |  |               |         |              |  |       |         |   |  |   |         |   |  |   |          |  
|Average common shares outstanding            |  |               | 67,060  |          |  |               | 67,070  |              |  |       | 67,070  |   |  |   | 67,070  |   |  |   | 67,068   |  
|                                             |  |               |         |          |  |               |         |              |  |       |         |   |  |   |         |   |  |   |          |  
|Calendar year 2001                           |  |               |         |          |  |               |         |              |  |       |         |   |  |   |         |   |  |   |          |  
|Revenues                                     |  | $             | 12,757  |          |  | $             | 16,309  |              |  | $     | 18,697  |   |  | $ | 18,680  |   |  | $ | 66,443   |  
|Cost and expenses                            |  |               | 99,591  |          |  |               | 88,562  |              |  |       | 88,540  |   |  |   | 84,818  |   |  |   | 361,511  |  
|                                             |  |               |         |          |  |               |         |              |  |       |         |   |  |   |         |   |  |   |          |  
|Loss from operations                         |  |               | (86,834 | )        |  |               | (72,253 | )            |  |       | (69,843 | ) |  |   | (66,138 | ) |  |   | (295,068 | )
|Other income/(expense), net                  |  |               | 1,848   |          |  |               | 1,888   |              |  |       | 712     |   |  |   | 305     |   |  |   | 4,753    |  
|                                             |  |               |         |          |  |               |         |              |  |       |         |   |  |   |         |   |  |   |          |  
|Loss before income taxes                     |  |               | (84,986 | )        |  |               | (70,365 | )            |  |       | (69,131 | ) |  |   | (65,833 | ) |  |   | (290,315 | )
|Income taxes                                 |  |               |        |          |  |               |        |              |  |       |        |   |  |   |        |   |  |   |         |  
|                                             |  |               |         |          |  |               |         |              |  |       |         |   |  |   |         |   |  |   |          |  
|Net loss                                     |  |               | (84,986 | )        |  |               | (70,365 | )            |  |       | (69,131 | ) |  |   | (65,833 | ) |  |   | (290,315 | )
|Dividends on series B and C preferred shares |  |               | 3,674   |          |  |               | 4,101   |              |  |       | 4,579   |   |  |   | 4,651   |   |  |   | 17,005   |  
|                                             |  |               |         |          |  |               |         |              |  |       |         |   |  |   |         |   |  |   |          |  
|Net loss applicable to common stockholders   |  | $             | (88,660 | )        |  | $             | (74,466 | )            |  | $     | (73,710 | ) |  | $ | (70,484 | ) |  | $ | (307,320 | )
|                                             |  |               |         |          |  |               |         |              |  |       |         |   |  |   |         |   |  |   |          |  
|Basic and diluted loss per common share      |  | $             | (1.41   | )        |  | $             | (1.11   | )            |  | $     | (1.10   | ) |  | $ | (1.05   | ) |  | $ | (4.66    | )
|                                             |  |               |         |          |  |               |         |              |  |       |         |   |  |   |         |   |  |   |          |  
|Average common shares outstanding            |  |               | 62,848  |          |  |               | 67,008  |              |  |       | 67,055  |   |  |   | 67,055  |   |  |   | 66,018   |  
|                                             |  |               |         |          |  |               |         |              |  |       |         |   |  |   |         |   |  |   |          |  

F-35



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##### Table of Contents



The following table presents unaudited financial
information for the six-month period ended December 31,
1999, and is shown to failitate comparison to the six
month-period ended December 31, 2000.

|                                                         |                          |                   |         |        | 
|-------------------------------------------------------- | ------------------------ | ----------------- | ------- | ------ | 
|                                                         |                          | Six Months       
|                                                         |                          | Ended            
|                                                         |                          | December 31, 1999
|                                                         |                          |                  
|Revenues:                                                |                          |                   |         |       
|Subscriptions                                            |                          |                   | 2,106   |       
|Advertising and other                                    |                          |                   | 537     |       
|                                                         |                          |                   |         |       
|                                                         | Total revenues           |                   |         | 2,643  | 
|Costs and expenses:                                      |                          |                   |         |       
|Cost of revenues                                         |                          |                   | 5,755   |       
|Sales and marketing                                      |                          |                   | 19,521  |       
|General and administrative                               |                          |                   | 6,108   |       
|                                                         |                          |                   |         |       
|                                                         | Total costs and expenses |                   |         | 31,384 | 
|Loss from operations                                     |                          |                   | (28,741 | )     
|Interest Expense                                         |                          |                   |        |       
|Other income, net                                        |                          |                   | 592     |       
|                                                         |                          |                   |         |       
|Loss before income taxes                                 |                          |                   | (28,149 | )     
|Income taxes                                             |                          |                   |        |       
|                                                         |                          |                   |         |       
|Net loss                                                 |                          |                   | (28,149 | )     
|Less: Dividends on Series B and C preferred
    shares   |                          |                   |        |       
|                                                         |                          |                   |         |       
|Net loss applicable to common stockholders               |                          |                   | (28,149 | )     
|Loss per common share, basic and diluted                 |                          |                   | N/A     |       
|Weighted average number of common shares
    outstanding |                          |                   | N/A     |       

SUPPLEMENTAL RELATED PARTIES DISCLOURE:

Transactions with affiliated parties are
reflected in the consolidated statements of operations as
follows:

|                                  |                                        |  |       |       | 
|--------------------------------- | -------------------------------------- |  | ----- | ----- | 
|Puerto Rico subscription revenues |                                        |  | N/A   |      
|Advertising and other revenues    |                                        |  |      |      
|Cost of revenues                  |                                        |  |      |      
|Sales and marketing               |                                        |  | 2,443 |      
|General and administrative        |                                        |  | 2,025 |      
|Interest expense                  |                                        |  | N/A   |      
|                                  |                                        |  |       |      
|                                  | Total related party costs and expenses |  |       | 4,468 | 

F-36