##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549




---

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,
    2003                                             
|  
|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(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. þ

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 admiting that any
person whose shares are not included in such calculation is an
affiliate) computed by reference to the price at which
class A common stock was last sold as of the last business
day of the registrants most recently computed second
fiscal quarter, June 30, 2003, was $34,311,258.

The number of shares of the registrants
class A common stock outstanding as of March 17, 2004
was 135,286,703. No shares of the registrants class B
common stock or class C common stock were outstanding as of
March 17, 2004.



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TABLE OF CONTENTS

|                                                  |  |                                                                                                        |  |      |    | 
|------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|                                                  |  |                                                                                                        |  | Page
|                                                  |  |                                                                                                        |  |     
|PART I                                           
|                                                 
|Item 1.                                           |  | Business                                                                                               |  |      | 2  | 
|                                                 
|Item 2.                                           |  | Properties                                                                                             |  |      | 15 | 
|                                                 
|Item 3.                                           |  | Legal Proceedings                                                                                      |  |      | 15 | 
|                                                 
|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                              |  |      | 16 | 
|                                                 
|Item 6.                                           |  | Selected Financial Data                                                                                |  |      | 17 | 
|                                                 
|Item 7.                                           |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations              |  |      | 18 | 
|                                                 
|Item 7A                                           |  | Quantitative and Qualitative
    Disclosures about Market Risk                                         |  |      | 49 | 
|                                                 
|Item 8.                                           |  | Financial Statements and
    Supplementary Data                                                        |  |      | 49 | 
|                                                 
|Item 9.                                           |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure               |  |      | 49 | 
|                                                 
|Item 9A                                           |  | Controls and Procedures                                                                                |  |      | 49 | 
|                                                 
|PART III                                         
|                                                 
|Item 10.                                          |  | Directors and Executive
    Officers of the Registrant                                                 |  |      | 50 | 
|                                                 
|Item 11.                                          |  | Executive Compensation                                                                                 |  |      | 55 | 
|                                                 
|Item 12.                                          |  | Security Ownership of
    Certain Beneficial Owners and Management and Related Stockholder
    Matters |  |      | 58 | 
|                                                 
|Item 13.                                          |  | Certain Relationships and
    Related Transactions                                                     |  |      | 62 | 
|                                                 
|Item 14.                                          |  | Principal Accountant Fees
    and Services                                                             |  |      | 66 | 
|                                                 
|PART IV                                          
|                                                 
|Item 15.                                          |  | Exhibits, Financial
    Statement Schedules and Reports on Form 8-K                                    |  |      | 67 | 
|EX-3.1(c) Fourth Amend. Restated Cert. of Incorp.
|Ex-21.1 List of Subsidiaries                     
|EX-23.1 Consent of Ernst & Young LLP             
|EX-31.1 Section 302 Certification of CEO         
|EX-31.2 Section 302 Certification of CFO         
|EX-32.1 Section 906 Certifications of CEO & CFO  



1



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##### Table of Contents






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 a leading interactive service provider
in Latin America. Our goal is to be a 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 in Latin America. We derive our revenues
principally from member subscriptions to our AOLA country
services, the AOL-branded service in Puerto Rico and our
web-based interactive services. We also generate additional
revenues from advertising and other revenue sources. Other
revenue sources include programming services provided to America
Online for its Latino content area and revenue sharing
agreements with certain local telecommunications providers.

Our AOLA country services and web-based
interactive services provide our members with easy and reliable
access to online communities, content and localized versions of
certain of America Online, Inc.s (America
Online) interactive products. Our services enable members
to access and explore the Internet and encourage members to
participate in interactive communities through tools such as
Spanish and Portuguese versions of AOL Instant Messenger, Buddy
Lists, e-mail, web logs, public bulletin boards, online meeting
rooms, conversations, chat and auditorium events. Our AOLA
country services require members to use a software client
program on their computers, whereas our web-based services do
not require this software. Members can personalize their online
experience through a variety of features, including customized
news and e-mail controls. Our interactive services also provide
members with local and regional content organized into channels,
making areas of interest easy to find, and our AOLA country
services also provide access to the extensive global content of
the AOL service.

Our markets in Latin America are Brazil, Mexico,
Argentina and Puerto Rico. We have no current plans to expand to
other markets in Latin America. In the table below, with respect
to each market, we provide the date on which we first launched
our country service in each market and our market coverage as of
February 2004.

|            |  |                   |               |                  |  |  |                        | 
|----------- |  | ----------------- | ------------- | ---------------- |  |  | ---------------------- | 
|Market      |  | Commencement Date |               | Service Coverage
|            |  |                   |               |                 
|Brazil      |  |                   | November 1999 |                  |  |  | Available in 321 cites | 
|Mexico      |  |                   | July 2000     |                  |  |  | Available in 58 cites  | 
|Argentina   |  |                   | August 2000   |                  |  |  | Available in 22 cites  | 
|Puerto Rico |  |                   | December 2000 |                  |  |  | Available island-wide  | 

Under an agreement with America Online, 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.

We launched our new web-based content and
connectivity services in Brazil, Argentina and Puerto Rico in
September 2003, October 2003 and February 2004, respectively.
Our web-based services are priced at lower rates than our
country services. We expect these new services to better allow
us to compete on the basis of price in all of our markets and,
in Brazil, to allow consumers to choose the features they need.
We believe our new web-based services in Brazil and Argentina
will become our primary products in those countries, although at
present the majority of our members in those countries are using
the AOLA country service. We are no longer actively promoting
the AOLA country service in Brazil and Argentina, although they
are still available. We expect to experience migration of
membership from our AOL Brazil and AOL

2



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Argentina country services to our new web-based
services. To date, approximately 38% of subscribers to our
web-based services in Brazil and Argentina have migrated from
our AOLA country services.


We offer our web-based service in Puerto Rico,
which we market as Conexis, but we do not expect it
to become our primary product offering. We expect to experience
migration from the AOL-branded service in Puerto Rico to our
web-based service. We began testing a web-based service in
Mexico in September 2003, and our decision on whether or not to
launch this service in Mexico will depend on these test results.
We would not expect a web-based service in Mexico to become our
primary product offering in that country.

In June 2000, we entered into a ten-year
strategic alliance with Banco Itaú, one of the largest
banks in Latin America. Banco Itaú is obligated to market
and promote a co-branded version of our interactive services in
Brazil as the principal means of accessing Banco
Itaús interactive financial services. We also market
a version of our web-based interactive services in Banco
Itaú branches containing the same co-branded features as
our country service. 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, bundled
service plan.

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. As part of
the agreement, we paid McDonalds an initial fee of
approximately $2.1 million and are required to pay an
annual fee over the five-year term of the agreement, which
together with the initial fee will in the aggregate total as
much as $7.0 million. In addition, we also are required to
pay McDonalds a fee for each new member who becomes a
paying member of our AOLA country service in Brazil through this
agreement. We launched the project in a limited number of
restaurants in October 2003, but the implementation of this
agreement has been subject to a number of delays and still has
not been fully implemented.

We recently modified our agreement with
McDonalds under which, among other things, McDonalds
is required to hire, train and deploy in the restaurant kiosks,
for a period of one year, at its cost, 300 promoters who will be
exclusively dedicated to the project. We also have the right for
AOL Brazil to be promoted in two of McDonalds national
advertising campaigns in 2004 and two additional such campaigns
in 2005. As part of the restructured agreement, we are no longer
required to pay a maintenance fee to McDonalds related to
the first year of the contract (estimated to have been
$0.9 million), and McDonalds is no longer required to
pay us penalties for their failure in the first year of the
contract to establish kiosks on a timely basis according to the
implementation schedule included in the initial contract
(estimated to have been up to $0.8 million). As part of the
restructured agreement, McDonalds is required to
establish, by August 31, 2004, functioning kiosks in 550 of
its restaurants. To the extent that McDonalds does not
meet this target date, they will be obligated to refund to us a
portion of our $2.1 million initial investment. The
initiative is presently operating in only a limited number of
restaurants and we hope to achieve full implementation by the
first quarter of 2005. Failure to successfully implement this
agreement would negatively impact our future membership levels.
Please see Item 7  Managements
Discussion and Analysis of Financial Condition and Results of
Operations  Overview, for additional discussion
regarding our relationship with McDonalds.

We consider countries in which we have launched
our AOLA country services or web-based interactive services as
operational segments and internally report our operations on a
country-by-country basis. Although amounts for Argentina are not
currently material and are not expected to be material in future
reporting periods, we have decided not to consolidate Argentina
with our corporate and other segment in order to facilitate
historical segment comparisons. Each of our operating segments,
except for Puerto Rico, derives its subscription revenues
through the provision of interactive services and also from
advertising and other revenue sources. In Puerto Rico, we derive
our subscription revenue from our arrangement with America
Online whereby America Online transfers it net economic
interests from members to the AOL-branded service in Puerto Rico
to us. Our Puerto Rico segment also derives revenue from
advertising and other revenue. Please see
Item 7  Managements Discussion and
Analysis of Financial Condition and Results of
Operations  Segment Results of Operations.

3



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##### Table of Contents



Our founders and principal stockholders are
America Online, a subsidiary of Time Warner Inc. (Time
Warner), 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 audited consolidated financial statements.

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/.

Our Services



| |                                                     
| | ----------------------------------------------------
| | The AOLA Country Services and Web-Based
    Services

Our AOLA country services and web-based
interactive services offer the following features:

Access to the
Internet.We provide our members with
access to and use of the Internet. A simple tool bar allows
members to move between the features and content on our online
service and the Internet.

Online Community
Features.We believe that our services
promote interactive online communities through features such as
e-mail, web logs, Buddy Lists, AOL Instant Messenger and online
community centers.

Channel Line-Up.Our
services feature channels for news, finance,
entertainment, Internet and computing, sports, local,
lifestyles and shopping.

Personalization and Control
Features.Members to our AOLA country
services and web-based interactive services are able to
personalize their interactive experience in varying degrees
through a number of features and tools, and which may include:



| |   |                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Multiple screen names, or e-mail accounts, per
    membership for certain subscription plans, 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.                                                                                           

4



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Online and Offline Help.We offer our members both online
help and offline customer support services. Our AOLA
country services and web-based interactive 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, although members
may incur the cost of domestic telephone calls. Members
subscribing to unbundled plans incur per call charges and/or
charges proportional to the amount of time required to service
the call, in addition to any costs for domestic telephone calls.

Our Web-based and Broadband Services.Our web-based Internet connectivity
service in Brazil is segmented to address four broad categories:



| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | (1) AOL Total, which provides content and
    email services (seven addresses) similar to our current AOL
    country services;    
|
| | (2) AOL Executive, which focuses on news and
    sports relevant to adults and provides three email addresses;                     
|
| | (3) AOL Youth, which provides content and
    services of interest to the youth segment and provides three
    email addresses; and
|
| | (4) AOL Lite, which provides basic Internet
    connectivity, one email address, and minimal content.                              

Unlike Brazil, in Puerto Rico and Argentina, we
offer only one web-based product. Conexis is the
name of the web-based service we offer in Puerto Rico, which
provides basic Internet connectivity, one email address, and
minimal content. In Argentina, our web-based product offering is
full-featured and similar to AOL Total in Brazil.

We launched our broadband service in Brazil, AOL
MAXX, nationally in August 2003. Our new broadband service is a
full-featured product offering subscribers faster Internet
access through DSL and cable and unique content designed for
delivery through high-speed channels. The pricing of our
broadband service in Brazil varies depending upon our
telecommunications partner. The gross margin contribution on our
broadband product offerings is expected to be similar to that of
our AOLA Brazil country service as the business becomes
established. We are also testing broadband products in Mexico
and Argentina, although at present we do not have plans to
launch nationally in these countries. A decision on whether or
not to launch our broadband service in Mexico and Argentina will
depend on the test results.

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.



| |   |                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.

Most new members are selecting unbundled plans,
which do not provide free call center support.

5



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##### Table of Contents



The following table sets forth the service plans
and pricing that we offer in our markets as of March 10,
2004. All references to the equivalent pricing in
U.S. dollars reflect exchange rates for the applicable
local currencies as of March 10, 2004.

Service Price Plans by Country

(U.S. Dollars)


|                                                     |  |        |       |        |  |           |      |             |  |     |       |       |  |       |       |     |  |       |      |       |  |     |       |       |  |  |       |  |  |  |      |  |  |  |       |  |  |  |       |  |  |  |   |  |  |  |       | 
|---------------------------------------------------- |  | ------ | ----- | ------ |  | --------- | ---- | ----------- |  | --- | ----- | ----- |  | ----- | ----- | --- |  | ----- | ---- | ----- |  | --- | ----- | ----- |  |  | ----- |  |  |  | ---- |  |  |  | ----- |  |  |  | ----- |  |  |  | - |  |  |  | ----- | 
|                                                     |  |        |       |        |  |           |      |            
|                                                     |  | Brazil |       | Mexico |  | Argentina |      | Puerto Rico
|                                                     |  |        |       |        |  |           |      |            
|                                                     |  | Price  |       | VAT    |  | Total     |      | Price       |  | VAT |       | Total |  | Price |       | VAT |  | Total |      | Price |  | VAT |       | Total
|                                                     |  |        |       |        |  |           |      |             |  |     |       |       |  |       |       |     |  |       |      |       |  |     |       |      
|Bundled AOLA Country Service                         |  |        |       |        |  |           |      |             |  |     |       |       |  |       |       |     |  |       |      |       |  |     |       |       |  |  |       |  |  |  |      |  |  |  |       |  |  |  |       |  |  |  |   |  |  |  |       | 
|Unlimited Access                                     |  |        | 11.85 |        |  |           | 1.18 |             |  |     | 13.03 |       |  |       | 19.91 |     |  |       | 2.99 |       |  |     | 22.90 |       |  |  | 11.13 |  |  |  | 2.34 |  |  |  | 13.47 |  |  |  | 23.90 |  |  |  |  |  |  |  | 23.90 | 
|20-hours                                             |  |        | 7.10  |        |  |           | 0.71 |             |  |     | 7.81  |       |  |       |      |     |  |       |     |       |  |     |      |       |  |  |      |  |  |  |     |  |  |  |      |  |  |  |      |  |  |  |  |  |  |  |      | 
|15-hours                                             |  |        |      |        |  |           |     |             |  |     |      |       |  |       |      |     |  |       |     |       |  |     |      |       |  |  | 6.71  |  |  |  | 1.41 |  |  |  | 8.12  |  |  |  |      |  |  |  |  |  |  |  |      | 
|10-hours                                             |  |        | 5.32  |        |  |           | 0.53 |             |  |     | 5.85  |       |  |       | 13.55 |     |  |       | 2.03 |       |  |     | 15.58 |       |  |  | 5.07  |  |  |  | 1.06 |  |  |  | 6.13  |  |  |  |      |  |  |  |  |  |  |  |      | 
|5-hours                                              |  |        | 3.54  |        |  |           | 0.35 |             |  |     | 3.89  |       |  |       | 9.00  |     |  |       | 1.35 |       |  |     | 10.35 |       |  |  |      |  |  |  |     |  |  |  |      |  |  |  | 9.95  |  |  |  |  |  |  |  | 9.95  | 
|Additional Hour                                      |  |        | 0.46  |        |  |           | 0.05 |             |  |     | 0.51  |       |  |       | 1.64  |     |  |       | 0.25 |       |  |     | 1.88  |       |  |  | 1.03  |  |  |  | 0.22 |  |  |  | 1.24  |  |  |  | 2.95  |  |  |  |  |  |  |  | 2.95  | 
|Bring Your Own Access                                |  |        |      |        |  |           |     |             |  |     |      |       |  |       | 9.00  |     |  |       | 1.35 |       |  |     | 10.35 |       |  |  |      |  |  |  |     |  |  |  |      |  |  |  | 14.95 |  |  |  |  |  |  |  | 14.95 | 
|                                                    
|Unbundled AOLA Country Service                       |  |        |       |        |  |           |      |             |  |     |       |       |  |       |       |     |  |       |      |       |  |     |       |       |  |  |       |  |  |  |      |  |  |  |       |  |  |  |       |  |  |  |   |  |  |  |       | 
|Unlimited Access                                     |  |        | 10.14 |        |  |           | 1.01 |             |  |     | 11.15 |       |  |       | 16.27 |     |  |       | 2.44 |       |  |     | 18.71 |       |  |  | 6.71  |  |  |  | 1.41 |  |  |  | 8.12  |  |  |  |      |  |  |  |  |  |  |  |      | 
|20-hours                                             |  |        | 6.08  |        |  |           | 0.61 |             |  |     | 6.69  |       |  |       |      |     |  |       |     |       |  |     |      |       |  |  |      |  |  |  |     |  |  |  |      |  |  |  |      |  |  |  |  |  |  |  |      | 
|10-hours                                             |  |        | 2.73  |        |  |           | 0.27 |             |  |     | 3.00  |       |  |       |      |     |  |       |     |       |  |     |      |       |  |  |      |  |  |  |     |  |  |  |      |  |  |  |      |  |  |  |  |  |  |  |      | 
|5-hours                                              |  |        | 0.81  |        |  |           | 0.08 |             |  |     | 0.90  |       |  |       |      |     |  |       |     |       |  |     |      |       |  |  |      |  |  |  |     |  |  |  |      |  |  |  |      |  |  |  |  |  |  |  |      | 
|Additional Hour                                      |  |        | 0.46  |        |  |           | 0.05 |             |  |     | 0.51  |       |  |       |      |     |  |       |     |       |  |     |      |       |  |  |      |  |  |  |     |  |  |  |      |  |  |  |      |  |  |  |  |  |  |  |      | 
|Member Services Support/call                         |  |        |      |        |  |           |     |             |  |     |      |       |  |       | 1.36  |     |  |       | 0.20 |       |  |     | 1.57  |       |  |  | 0.86  |  |  |  | 0.18 |  |  |  | 1.04  |  |  |  |      |  |  |  |  |  |  |  |      | 
|                                                    
|Web-Based Services                                   |  |        |       |        |  |           |      |             |  |     |       |       |  |       |       |     |  |       |      |       |  |     |       |       |  |  |       |  |  |  |      |  |  |  |       |  |  |  |       |  |  |  |   |  |  |  |       | 
|AOL Total/Conexis                                    |  |        | 10.14 |        |  |           | 1.01 |             |  |     | 11.15 |       |  |       |      |     |  |       |     |       |  |     |      |       |  |  | 9.90  |  |  |  | 2.08 |  |  |  | 11.98 |  |  |  | 14.95 |  |  |  |  |  |  |  | 14.95 | 
|AOL Executive                                        |  |        | 6.76  |        |  |           | 0.68 |             |  |     | 7.44  |       |  |       |      |     |  |       |     |       |  |     |      |       |  |  |      |  |  |  |     |  |  |  |      |  |  |  |      |  |  |  |  |  |  |  |      | 
|AOL Youth                                            |  |        | 6.76  |        |  |           | 0.68 |             |  |     | 7.44  |       |  |       |      |     |  |       |     |       |  |     |      |       |  |  |      |  |  |  |     |  |  |  |      |  |  |  |      |  |  |  |  |  |  |  |      | 
|AOL Lite                                             |  |        | 5.07  |        |  |           | 0.51 |             |  |     | 5.58  |       |  |       |      |     |  |       |     |       |  |     |      |       |  |  |      |  |  |  |     |  |  |  |      |  |  |  |      |  |  |  |  |  |  |  |      | 
|AOL Web without Member Service                       |  |        |      |        |  |           |     |             |  |     |      |       |  |       |      |     |  |       |     |       |  |     |      |       |  |  | 6.47  |  |  |  | 1.36 |  |  |  | 7.83  |  |  |  |      |  |  |  |  |  |  |  |      | 
|AOL Web (unbundled) Member Services
    Support/Call |  |        |      |        |  |           |     |             |  |     |      |       |  |       | 1.36  |     |  |       | 0.20 |       |  |     | 1.57  |       |  |  | 0.86  |  |  |  | 0.18 |  |  |  | 1.04  |  |  |  |      |  |  |  |  |  |  |  |      | 

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
have chosen unlimited service price plans.

The Argentina 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 Mexico plans described above are offered at
discounts to monthly billing rates for members who prepay their
AOLA country service. Prepayment plans are offered for three,
six and twelve-month periods. Additionally, discounts are
offered for payments via credit cards for any price plan. In
Puerto Rico, pricing for our AOL-branded service 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. We also offer Bring your
own access, which refers to usage of the AOL-branded
service through a third-party Internet provider. Prepaid plans
offering additional discounts are also available in Puerto Rico.

We make our interactive services accessible to a
broader audience of potential subscribers by offering multiple
mechanisms through which our members can pay us, including
credit cards, direct debits from bank accounts and cash payment
methods (including boletos). Cash payment methods
historically have accounted for a substantial majority of all
new member registrations in Brazil, Mexico and Argentina. Cash
payment methods are not available in Puerto Rico. However, the
percentage of new registrations selecting cash payment
alternatives has been declining in line with our efforts to
improve the quality of our

6



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##### Table of Contents



membership base. The percentages of members
selecting cash payment mechanisms, by country and in total, as
of December 31, 2003 and 2002, are shown in the following
table:


Subscribers Selecting Cash Payment
Mechanisms(%)

|                        |  |        |    |        |  |           |    |        |  |         |    |   |  |  |   |   |  |  |    |  
|----------------------- |  | ------ | -- | ------ |  | --------- | -- | ------ |  | ------- | -- | - |  |  | - | - |  |  | -- | -
|                        |  |        |    |        |  |           |    | Puerto |  | Total  
|                        |  | Brazil |    | Mexico |  | Argentina |    | Rico   |  | Company
|                        |  |        |    |        |  |           |    |        |  |        
|as of December 31, 2003 |  |        | 23 | %      |  |           | 13 | %      |  |         | 44 | % |  |  | 0 | % |  |  | 19 | %
|as of December 31, 2002 |  |        | 31 | %      |  |           | 42 | %      |  |         | 51 | % |  |  | 0 | % |  |  | 32 | %

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 historically have
been lower and less timely. As a result, we continue to
encourage conversion of these subscribers to non-cash payment
options and terminate members who do not pay on a timely basis.
In Mexico we have encouraged the sale of long-term prepaid
plans, which now account for 38% of current AOL Mexico members,
and eliminated free trial periods for members choosing the cash
payment options. In Brazil and Argentina, we either offer
discounts or apply surcharges to subscribers to our AOLA country
and web-based interactive services who choose cash payment
options.

Free Trial.We
generally make our AOLA country services, the AOL-branded
service in Puerto Rico and our web-based interactive services
available for free to new subscribers for a limited period of
time so they can experience our service offerings. We currently
offer 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 register for the service.
Subscribers to our web-based interactive services who select
cash payment options do not typically receive free trial
periods. In Mexico, we eliminated free trial periods entirely
for members who choose cash payment options.

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. Banco Itaú is obligated to market
and promote a co-branded version of our AOLA country service in
Brazil as the principal means of accessing Banco
Itaús interactive financial services. We also market
a version of our web-based interactive services in Banco
Itaú branches containing the same co-branded features as
the country service. Our relationship with Banco Itaú is
central to our marketing efforts in Brazil.

On December 14, 2002, we amended our
strategic marketing alliance with Banco Itaú. Under the
terms of the revised 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 services, which are staffed by promoters trained
by AOL Brazil. Potential subscribers are able to sample the
co-branded services and register in the bank branches. The
number of promoters varies depending on the success of the
marketing efforts, which are reviewed every three months. 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. Banco Itaú is also required to
distribute, at our direction, CDs containing the software for
the co-branded AOLA country 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 services and provide exclusive online banking
benefits to subscribers to the co-branded services. Banco
Itaú is 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. Banco Itaú is obligated to make
cash payments to us if minimum annual revenue targets and
marketing commitments are not met through March 2006. The
maximum aggregate amount that Banco Itaú will be required
to pay us if these targets are not met, which

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we refer to as reference payments, is
$26.0 million, $21.0 million and $13.0 million in
2004, 2005 and 2006, respectively. We expect to receive only
minimal amounts from Banco Itaú for its failure to meet
revenue targets for the March 24, 2004 measurement date
because we chose to receive payments from Banco Itaú in
lieu of marketing, as described below.


Beginning in the second half of 2003, as a result
of lower than expected productivity, we reduced the number of
promoters. Because of this reduction and our cancellation of
certain CD distributions, Banco Itaú made payments of
$4.5 million to us during 2003 in lieu of marketing
activities it was obligated to make under our revised marketing
agreement. We expect these payments to continue in the future
but the amounts to gradually decrease over time as per the terms
of the revised marketing agreement. We have the right to
redeploy or reinstate some of the promoters in the branches in
the future, in which case we would forego such payments from
Banco Itaú. Such payments from Banco Itaú are
accounted for as funds from financing activities in our
statement of cash flows and will reduce future marketing expense
by lowering the amortization expense associated with the shares
issued to Banco Itaú. Payments we receive from Banco
Itaú in lieu of marketing activities it is obligated to
make result in a reduction of amounts owed to us as reference
payments, since such amounts are considered revenues for
purposes of calculating Banco Itaús performance under
revenue targets.

Banco Itaús customers who register for
the co-branded services currently 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 co-branded AOL country
service on a monthly, bundled unlimited-use plan, are entitled
to a 20% discount. Banco Itaú, at its option, may subsidize
hours for certain customers who were subscribers to the
co-branded service prior to December 14, 2002. For the
quarter ended December 31, 2003, the amount of subsidies
paid by Banco Itaú for its members was not material. For
the year ended December 31, 2003, we received
$0.9 million in subsidies for its members from Banco
Itaú.

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 a regional customer
call center in Argentina to provide support for our
Spanish-language members in Argentina, Mexico and Puerto Rico.
We also have a Portuguese-language call center, which has been
outsourced to a third party in Brazil. Call center support was
consolidated 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 steep
devaluation of the Argentine peso. America Online provides
English-language support for members of the AOL-branded service
in Puerto Rico. We staff our call centers 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. It is provided through toll-free
telephone numbers in Mexico, Argentina and Puerto Rico. Email
and live chat support are also provided. Customers enrolled in
our lower cost unbundled service plans incur per call or
time-based charges for accessing live call center support.

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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 and
web-based interactive 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 AOLA
country 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. In
addition, there are online areas where members can perform such
self-help functions as Add/Delete Sub-accounts, Change Password,
and Update Billing Information or Payment Method.

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 Reuters, Agência Estado,
Valor Econômico, Klick Educação, Editora Delta,
Banana Games and Mundo da Criança. In Mexico, we have
entered into agreements with over 40 content providers,
including MexSport, Switch, Cine Premiere, El Inversionista,
EFE, Notimex, Max, Kokone (Kids Only), Universo E, Gamers
Generation, Toda Mujer, Salud y Medicina. In Argentina, we have
entered into agreements with over 100 content providers
including Asatej, Cybermapa, Familia Digital, De Mujer and
Revista Insider. We have entered into agreements relating to the
AOL brand service in Puerto Rico with more than 20 content
providers including Escape, Clasificados Online, Superchicos,
Modaonline and Dewey Color System.

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. Through our
relationship with America Online, we sometimes have the
opportunity to participate in America Onlines global
advertising arrangements. We also generate additional revenues
from other sources such as programming services provided to
America Online for its Latino content area and revenue sharing
agreements with certain local 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 or the performance of these
    advertisements; 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 may 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, we have also accepted equity interests as payment, or
partial payment, for arrangements entered into with development
stage companies. We may choose to accept such payments in the
future, although we do not foresee any such transactions at
present.

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Other Revenues.Other revenues are comprised of fees we receive from America
Online for programming services we provide to America Online for
use on their Latino content area, representation fees we receive
from America Online for selling advertising on their interactive
services and fees we receive from local telecommunications
companies for routing our traffic over their networks.

We provided programming services for a content
area on the AOL service in the United States targeted to the
Hispanic community. Under the one-year contract dated February
2003, America Online was obligated to pay us $750,000 per
year for these programming services to reimburse us for our
costs. This agreement expired in February 2004. However, we are
in discussions with America Online for a new agreement under
which America Online would pay us $400,000 per year and
provide us with certain product development services for our
Spanish-language client software at no charge. There can be no
assurance that we will be able to reach agreement with America
Online regarding our potential provision of these services.

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. These agreements are
recorded in either revenues or both revenues and cost of
revenues. This depends on whether we receive only cash payments
or whether we receive services from the telecommunications
provider. If we receive services, we must be able to estimate
the fair value of the services to recognize revenues and
expense. If we are not able to determine a fair value for the
services received from the telecommunication providers, we do
not reflect revenue or expense. As a consequence, our expense is
lower. Under certain agreements with telecommunications
providers, we receive payments based on the number of modems we
have connected to the telecommunications providers
network. Such payments are accounted for as reductions in cost
of revenues.

Cash payments received from telecommunications
providers are accounted for as other revenue. Currently, we have
such agreements with telecommunications providers in Argentina
and Brazil. Such revenues have not been material in the past and
we do not expect such revenues to be material in the future.

Marketing

Our marketing goals are to attract new consumers
to subscribe to, and to retain existing subscribers of, our AOLA
country services and our web-based interactive services by
building brand awareness and encouraging consumers to try our
interactive services. In the past, we typically distributed CDs
containing the software for our country service. These CDs
offered new 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. Beginning in
2002, we largely ceased the mass distribution of CDs in an
effort to target higher-value members and to reduce costs.

We now acquire new members primarily through
point-of-sale displays and kiosks located in high-traffic retail
locations such as shopping malls and large retailers, and
through kiosks located at Banco Itaú bank branches in
Brazil. We also seek to attract members through agreements with
computer and computer peripheral manufacturers (OEMs). For
example, we currently have agreements for the bundling of our
America Online service software with Hewlett-Packard in Mexico
and Brazil, and with Samsung and Lucky Goldstar in Brazil.

Since 2002, when we began to significantly reduce
our spending on member acquisition, we have been relying
primarily on co-branded and joint marketing arrangements, where
a third-party partner is responsible for undertaking and
implementing a significant percentage of the marketing effort.
See Item 7  Managements Discussion
and Analysis of Financial Condition and Results of
Operations-Overview.

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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 AOL country
services through local and long distance dial-up telephone lines
or via TCP/IP through DSL or cable broadband access. The dial-up
lines are owned and operated by local and regional telephone
service companies. Local and regional telephone or cable
companies provide the broadband connectivity. 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 allows us to reduce
expenses through revenue sharing agreements with local phone
companies in Brazil and also earn additional immaterial revenues
in 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 outside of major
cities 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 prospective members.

Additionally, local and long distance telephone
charges have declined over time, a trend that 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 most of Latin America can be substantially higher than
in the U.S. Proposals are currently pending in Brazil that
would implement new pricing structures, including flat-rate
pricing options for data calls, in addition to existing metered
local telephone service. If adopted at reasonable price points
for consumers, we believe these new proposals 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. and Brazil, as well as connect our members
to the Internet. These third-party networks provide the modems
that allow our members to establish a connection to our online
services and the Internet. They also carry our data between
Latin America and the U.S. by satellite and through fiber
optic cable.

In Brazil, we have contracts with Embratel, an
affiliate of MCI, Telefonica, Brazil Telecom and Telemar to
carry our data within Brazil and to provide the modems through
which our members connect to our America Online Brazil country
and web-based interactive services. 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, 2004 and May 25, 2005, respectively. Our
contracts with Brasil Telecom and Telemar expire in April 2005
and July 2006, respectively. We also have access to capacity
provided by Progress Telecommunications Corporation
(Progress) through a contract between America Online
and Progress, which expires in April 2006. America Online
invoices us for the capacity used by us under this agreement. In
Mexico, we have an agreement through June of 2005 with
Teléfonos de Mexico (Telmex) under which Telmex provides us
with the majority of our network capacity. We also have a
network contract with Avantel, an affiliate of MCI, which
expires in January 2005, under which Avantel provides us with
additional network capacity. In Argentina, we have entered into
a network contract with Impsat. Our contract with Impsat expires
on December 23, 2004. In Puerto Rico, our dial-up network
is provided by Centennial de Puerto Rico under a contract
between America Online and Centennial which expires on
April 19, 2004, but which is renewable annually for three
additional years.

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

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greater capacity and is generally more reliable
than satellite-based transmissions. We do not expect that we
will need to enter into additional fiber optic network contracts
in the near future.


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 may make adjustments based on marketing
projections and other considerations. 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. Some of our
contracts commit us to purchase minimum amounts of network
capacity. If the number of our subscribers, or their use of our
online services, do not meet these minimums, our per unit
network costs could increase. In recent years, we have paid
penalties to telecommunications providers to reduce network
capacity as part of our efforts to size our infrastructure to
members who pay on a timely basis.

Technology.Our main
servers are owned and maintained by America Online in three
locations in Virginia in the United States and in Sao Paulo,
Brazil. The AOLA content and the tools to operate our online
services are located on these servers.

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. In Brazil, our members can
also access broadband services via cable and via DSL connections.

Competition

We operate in the highly competitive and rapidly
evolving businesses of online services and Internet access, and
online advertising. We compete primarily with providers of
Spanish- and Portuguese-language Internet access services. Our
principal regional market competitors include Terra Lycos, an
affiliate of Telefónica, and Microsoft (MSN). Our primary
local competitors in our core target countries include Universo
Online (UOL) and Terra Lycos 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, Advance, which is owned by Telefonica
Argentina, UOL-Sinectis, and Arnet, which is owned by Telecom,
and free services provided by Fullzero, Tutopia and Alternativa
Gratis in Argentina; and Coquinet/PRT.net service offered by
Telefonica de Puerto Rico and Caribe.net in Puerto Rico. The
regulatory environment in Brazil is supportive of providers of
free Internet access in Brazil and the number of free Internet
service providers has increased recently with the entry of local
telephone companies. As a result, free Internet access providers
have continued to attract significant numbers of new users in
Brazil.

Our online service subscription fees for our AOLA
country services and the co-branded service in Puerto Rico are
generally higher than those offered by competing online service
providers because we consider our service to be a premium
service. In order to better compete with providers of low-cost
and free Internet services, we recently launched our web-based
interactive services in Brazil, Puerto Rico and Argentina. We
regularly review the actions of our competitors and our
competitive position. Based on these reviews, we may consider
changes in our pricing to be more competitive.

We also compete for advertising revenues with
traditional media such as newspapers, magazines, radio and
television. We believe that the principal competitive factors in
generating advertising revenue include the demographics of
visitors, in addition to the number of visitors to an online
service or Internet site. However, the reduction in membership
we experienced during 2003 has negatively impacted our ability
to provide advertisers with viewer impressions, and as a result
advertising revenue has not recovered in line with the overall
market.

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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
our 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, 2003, 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 do not have the
right to offer Netscape, MapQuest, Moviefone or any other
non-AOL-branded interactive service, which is owned by America
Online.



| |                                        
| | ---------------------------------------
| | Termination of our exclusive
    rights

We will lose the exclusivity of our licensed
rights:



| |   |                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | to AOL-branded PC-based online services on the
    date which either America Online or the Cisneros Group own 20%
    or less of the 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 own 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.

13



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##### Table of Contents



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. 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 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 ISPs 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, upon
expiration in January 2006 of the law which privatized the
national telephone monopoly in 1994, which

14



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##### Table of Contents



granted exclusive franchise rights to the newly
privatized local telephone companies. Possible modifications
include 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 by lowering the total cost of Internet access for
consumers. In connection with this proposed regulation, rules
governing interconnection fees between telecommunications
providers may also be modified. If such rules were to be
modified, we would expect to lose revenues we currently receive
from telecommunications providers for routing our traffic over
their lines. 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 federal 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, 2003, we had
957 full-time employees and contract employees, of whom 382
were located in Brazil, 99 in Mexico, 360 in Argentina, 42 in
the United States and 74 in Puerto Rico.

Our Executive Officers

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






|        |           
|------- | ----------
|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 headquarters are located in São
Paulo in approximately 22,700 square feet of office space
under lease, of which approximately 12,000 square feet
expire in August 2004 and the balance 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 2004.
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

From time to time, AOLA may be involved in
litigation relating to claims arising out of its operations in
the normal course of business. AOLA is not currently a party to
any legal proceedings, the adverse outcome of which,
individually or in the aggregate, is expected to have a material
adverse effect on AOLAs financial position or results of
operations.

15



---



##### Table of Contents








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

Matters submitted to stockholders

On September 4, 2003, the holders of all our
outstanding preferred stock voted by unanimous written consent
to approve a six-month marketing test of a web-based
subscription service in two countries offering email and
content, but not connectivity.

On December 4, 2003, these preferred
stockholders voted by unanimous written consent to approve an
amendment to our fourth restated certificate of incorporation to
increase the scope of activities that we can conduct.

Notice of change in date of annual
meeting

Our annual meeting of stockholders will be held
on June 23, 2004, which is more than 30 days earlier
than the anniversary of our last stockholders meeting.
Stockholders of record as of April 28, 2004 will be
entitled to vote. Stockholders wishing to nominate persons for
election to our Board as class A directors or to propose
other business to be transacted by stockholders must deliver
such notice to our secretary at our principal executive offices
not later than April 9, 2004.




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 AOLAC because
our stock was under a conditional listing period due to
non-compliance with Nasdaqs minimum market capitalization
requirement for continued listing. 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, since the first
quarter of 2002. 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
|                                              |  |     |      |      |  |      
|2003                                          |  |     |      |      |  |       |      |  |  |   |      | 
|October 1, 2003 through December 31,
    2003 |  | $   | 1.05 |      |  | $     | 2.75 |  |  | $ | 1.42 | 
|July 1, 2003 through September 30, 2003       |  |     | 0.56 |      |  |       | 2.10 |  |  |   | 1.05 | 
|April 1, 2003 through June 30, 2003           |  |     | 0.35 |      |  |       | 0.93 |  |  |   | 0.60 | 
|January 1, 2003 through March 31, 2003        |  |     | 0.36 |      |  |       | 0.75 |  |  |   | 0.41 | 
|                                             
|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 | 

16



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##### Table of Contents



Recent Sales of Unregistered
Securities

None.

Stockholders

There were 577 holders of record of class A
common stock as of March 10, 2004.

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 the 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.






|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The selected consolidated financial data set
forth below for each of the three years in the period ended
December 31, 2003 are derived from our audited consolidated
balance sheets as of December 31, 2003 and 2002, and the
related audited consolidated statements of operations,
stockholders equity (capital deficiency) and cash flows
for each of the three years ended December 31, 2003, 2002
and 2001 and notes thereto, which are included elsewhere in this
report. The consolidated balance sheet data as of
December 31, 2001 and 2000, and as of June 30, 2000
and the consolidated statements of operations data for six-month
period ended December 31, 2000 and the twelve-month period
June 30, 2000 have been derived from our related audited
financial statements. The selected consolidated financial data
set forth below should be read in conjunction with, and are
qualified by reference to, Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations and our audited consolidated financial
statements.

17



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##### Table of Contents



SELECTED FINANCIAL DATA

(In thousands, except share, per share amounts
and percentages)


|                                                         |                       |              |             |              |  |               |            |              |  |          |            |        |  |   |            |       |  |   |         |       | 
|-------------------------------------------------------- | --------------------- | ------------ | ----------- | ------------ |  | ------------- | ---------- | ------------ |  | -------- | ---------- | ------ |  | - | ---------- | ----- |  | - | ------- | ----- | 
|                                                         |                       |              |             |              |  |              
|                                                         |                       | Year Ended   |             | Six Months   |  | Twelve Months
|                                                         |                       |              |             | Ended        |  | Ended        
|                                                         |                       | December 31, |             | December 31, |  | December 31,  |            | December 31, |  | June 30,
|                                                         |                       | 2003         |             | 2002         |  | 2001          |            | 2000         |  | 2000    
|                                                         |                       |              |             |              |  |               |            |              |  |         
|Condensed Consolidated Operations                        |                       |              |             |              |  |               |            |              |  |          |            |        |  |   |            |       |  |   |         |      
|Revenues:                                                |                       |              |             |              |  |               |            |              |  |          |            |        |  |   |            |       |  |   |         |      
|                                                         | Subscriptions         |              | $           | 59,415       |  |               | $          | 62,998       |  |          | $          | 49,918 |  |   | $          | 8,050 |  |   | $       | 5,848 | 
|                                                         | Advertising and other |              |             | 5,759        |  |               |            | 9,109        |  |          |            | 16,525 |  |   |            | 4,423 |  |   |         | 3,352 | 
|                                                         |                       |              |             |              |  |               |            |              |  |          |            |        |  |   |            |       |  |   |         |      
|                                                         |                       |              | 65,174      |              |  |               | 72,107     |              |  |          | 66,443     |        |  |   | 12,473     |       |  |   | 9,200   |      
|Costs and expenses                                       |                       |              | 148,835     |              |  |               | 228,736    |              |  |          | 361,511    |        |  |   | 212,588    |       |  |   | 109,124 |      
|                                                         |                       |              |             |              |  |               |            |              |  |          |            |        |  |   |            |       |  |   |         |      
|Loss from operations                                     |                       | $            | (83,661     | )            |  | $             | (156,629   | )            |  | $        | (295,068   | )      |  | $ | (200,115   | )     |  | $ | (99,924 | )    
|                                                         |                       |              |             |              |  |               |            |              |  |          |            |        |  |   |            |       |  |   |         |      
|Net loss applicable to common
    stockholders           |                       | $            | (116,608    | )            |  | $             | (180,591   | )            |  | $        | (307,320   | )      |  | $ | (205,662   | )     |  | $ | (97,913 | )    
|                                                         |                       |              |             |              |  |               |            |              |  |          |            |        |  |   |            |       |  |   |         |      
|Loss per common share, basic and diluted                 |                       | $            | (0.88       | )            |  | $             | (2.69      | )            |  | $        | (4.66      | )      |  | $ | (4.24      | )     |  |   | N/A     |      
|                                                         |                       |              |             |              |  |               |            |              |  |          |            |        |  |   |            |       |  |   |         |      
|Weighted average number of common shares
    outstanding |                       |              | 132,903,430 |              |  |               | 67,067,603 |              |  |          | 66,017,796 |        |  |   | 48,496,436 |       |  |   | N/A     |      
|                                                         |                       |              |             |              |  |               |            |              |  |          |            |        |  |   |            |       |  |   |         |      
|Cash and cash equivalents                                |                       | $            | 32,901      |              |  | $             | 75,501     |              |  | $        | 46,676     |        |  | $ | 132,866    |       |  | $ | 33,321  |      
|Total assets                                             |                       | $            | 55,739      |              |  | $             | 100,274    |              |  | $        | 84,384     |        |  | $ | 179,031    |       |  | $ | 55,640  |      
|Long-term debt                                           |                       | $            | 160,000     |              |  | $             | 160,000    |              |  | $        |           |        |  | $ |           |       |  | $ |        |      
|Stockholders equity (capital deficiency)                 |                       | $            | (132,959    | )            |  | $             | (97,086    | )            |  | $        | 21,123     |        |  | $ | 123,821    |       |  | $ | 23,319  |      
|Working capital                                          |                       | $            | 17,008      |              |  | $             | 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.During
2003, we continued our focus on initiatives, which we began in
2002, designed to better target higher-value members, size our
telecommunications and member services infrastructure to support
only those members who are timely in their payments to us, and
continue lowering our overall costs and expenses. We define
higher-value members as members who pay us on a
timely basis and who have a greater likelihood of remaining
subscribers to our services for an extended period of time.
These initiatives included efforts to focus on marketing
channels that are cost efficient and likely to produce
registrations resulting in higher-value members, efforts to gain
specific marketing commitments from our partners and efforts to
continue lowering our network and member services costs. This
focus had several important effects on our fiscal 2003 results,
as compared with 2002 results, including:



| |   |                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------
| |  | a significant reduction in operating loss and
    cash utilization;                                      
|
| |  | a significant reduction in our cost of revenues,
    sales and marketing expenses and other expenses; and
|
| |  | a significant decrease in our total membership.                                                          

To better compete against low-cost Internet
providers, better address consumer needs and to continue
reducing our overall costs and expenses, we launched web-based
services in Brazil and Argentina in the second half of 2003. We
expect this to become our primary service in both Brazil and
Argentina. We are no longer actively promoting the AOLA country
services in Brazil and Argentina, although we plan to

18



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##### Table of Contents



continue offering and providing our country
services in Brazil and Argentina. In February 2004, we also
launched a low-cost web-based service offering minimal email and
content in Puerto Rico to address the low-cost Internet segment
where we did not previously have a presence. We are currently
testing a web-based product offering in Mexico. A decision on
whether or not to launch our web-based service in Mexico will
depend on the test results.


Our future membership levels and our economic
performance in Brazil and Argentina will be highly influenced by
the extent of success of our web-based product offerings.
Approximately 13% of the membership totals as of
December 31, 2003 were subscribers to our web-based
interactive services. We expect to experience migration of
membership from our AOL Brazil and AOL Argentina country
services and the AOL-branded service in Puerto Rico to our new
web-based services. To date, approximately 38% of members of our
web-based services in Brazil and Argentina had migrated from our
AOLA country services. Initial results in Brazil indicate that
membership turnover is lower for our web-based offerings than
for our AOLA country services. However, at this time we cannot
predict whether the improvements will continue or will be
sufficient to achieve our economic viability.

Our greater selectivity in the acquisition of new
members has resulted in fewer new registrations, but which we
hope will eventually be of higher value. Our rate of member
acquisitions has also been affected by reduced marketing
expenditures and our increased focus on marketing efficiency,
which resulted in a smaller number of kiosks in retail
locations. Registration rates and member turnover rates, and
therefore total membership, continue to be negatively impacted
by competition, especially in Brazil. The regulatory environment
in Brazil, under which the cost of local Internet connection
calls results in incremental revenues to local telephone
companies, continues to be supportive of lower-cost and free
Internet service providers. As a result, the Brazilian market
has continued to experience a proliferation of new competitors.

Over the longer term, we hope that our strategy
of focusing on higher-value members will result in lower overall
membership turnover. During 2003, our membership turnover rates
improved in Mexico and modestly in the Banco Itaú segment
of our Brazil business, although not sufficiently to stem losses
from reduced levels of marketing activities and continued
competitive pressures. Membership turnover, however, has not
improved for the non-Itaú AOLA country service in Brazil
nor for the AOLA country service in Argentina. Our membership in
2003 fell from 1.18 million on December 31, 2002 to
462,000 on December 31, 2003. During the fourth quarter of
2003, membership fell from 492,000 to 462,000. We expect that
our membership base will decrease by approximately 30,000
members in the first quarter of 2004, to approximately 430,000,
driven by the competitive environment in Brazil and by continued
delays in the implementation of the McDonalds marketing
agreement in Brazil. We anticipate growth in membership to
resume in the second half of 2004, depending on the consumer
acceptance of our web-based services and upon the success of our
McDonalds initiative.

Membership in our Banco Itaú co-branded
service decreased from 540,000 members at December 31, 2002
to 103,000 members, or 22% of our total membership base, at
December 31, 2003 as a result of the termination of members
who had not chosen a paid plan and membership turnover.
Termination of these members did not materially impact our
revenues or costs since a substantial majority of these members
were not paying us or using the service.

Total membership counts include members of our
AOL country services, our web-based interactive services and
broadband offerings, as well as members of the co-branded Banco
Itaú service. Our membership totals also include members
participating in free trial periods and retention programs. As
of December 31, 2003, 81% of our members, including members
still on their trial periods, had selected credit cards, direct
debit and other non-cash payment options, which have a better
rate of collection than cash-payment methods, as compared with
approximately 68% as of December 31, 2002. Approximately
14% of our total subscribers at December 31, 2003, were in
free trial periods or member retention programs, as compared
with approximately 58% as of December 31, 2002.

As we have reduced our spending on acquisition
marketing activities, we have increased our reliance on
co-branded and joint marketing arrangements, where a third-party
partner is responsible for implementing a significant percentage
of the marketing effort. Our two main marketing arrangements are

19



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##### Table of Contents



the revised marketing agreement with Banco
Itaú and the McDonalds marketing agreement, both in
Brazil. In Mexico and Puerto Rico, we have continued our
reliance on existing distribution channels, focusing primarily
on targeted increases in the number of kiosks located at retail
locations. Our reliance on the marketing efforts of strategic
partners has reduced the rate at which we use cash and has
lowered our sales and marketing expenses, since costs incurred
by our partners are not accounted for in our reported results.
However, reliance on third-party arrangements has also increased
the potential for unforeseen delays over which we have limited
control, as has been the case with McDonalds in Brazil.
Failure to successfully implement the McDonalds agreement
or to achieve the subscriber targets in the Banco Itaú
agreement would negatively impact our future membership levels.


During 2003, we experienced a decrease in our
subscription revenues as compared with the prior year. This
reduction was driven by declines in Brazil, Mexico and
Argentina, which were partially offset by increases in Puerto
Rico. The losses in Brazil, Mexico and Argentina were driven by
both currency devaluation and a reduction in paid membership.
The loss of paying members has been the main factor driving
lower subscription revenues in the second half of 2003. Future
subscription revenue performance will be highly influenced by
the extent of success of our new web-based product offerings in
reducing membership turnover and in attracting new members. We
expect our subscription revenues to decrease at least through
the first half of 2004, driven by the continued reduction in
paid membership and by the expected increase in subscribers to
our lower-priced web-based services rather than our
higher-priced services.

Advertising and other revenue continued to
decrease throughout 2003, despite an improved online advertising
environment in Latin America. We expect our advertising and
other revenue to continue decreasing in 2004 as a result of our
reduced membership base, our lack of success in attracting
significant commitments from traditional media advertisers and
the expiration of long-term contracts in 2003. Other revenues
are expected to decrease due to the expiration of our agreement
to provide programming services to America Online for their
Latino content area.

Although we expect our revenues to decrease in
2004, we also expect our costs to continue decreasing as well.
Telecommunication costs are expected to decrease, primarily as a
result negotiated reductions in network unit prices and capacity
achieved in 2003, while sales and marketing expenses are
expected to continue decreasing as a result of lower average
number of kiosks in operation and additional reductions in the
distributions of CDs. As a result, we expect to further reduce
our losses in 2004. We finished 2003 with available cash on hand
of $32.9 million as of December 31, 2003, which we
expect will be sufficient to fund operations into the first
quarter of 2005, based upon our current operating budget.

20



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##### Table of Contents



Consolidated Results of Operations

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, 2003,
December 31, 2002 and December 31, 2001.

REVENUES BY SEGMENT

|                         |                       |              |        |               |   |        |        |              |   |      |        |        |   |        |      |       |    |   |        |        |   |   |       |        |   |  |     |       |  
|------------------------ | --------------------- | ------------ | ------ | ------------- | - | ------ | ------ | ------------ | - | ---- | ------ | ------ | - | ------ | ---- | ----- | -- | - | ------ | ------ | - | - | ----- | ------ | - |  | --- | ----- | -
|                         |                       |             
|                         |                       | Year Ended  
|                         |                       |             
|                         |                       | December 31, |        | ber 31,       |   | %      |        | December 31, |   |      |        | %     
|                         |                       | 2003(Dollars |        | in thousands) |   | Change |        | Change       |   | 2001 |        | Change |   | Change
|                         |                       |              |        |               |   |        |        |              |   |      |        |        |   |       
|Revenues                 |                       |              |        |               |   |        |        |              |   |      |        |        |   |        |      |       |    |   |        |        |   |   |       |        |   |  |     |      
|                         | Subscriptions         |              | $      | 59,415        |   |        | $      | 62,998       |   |      | $      | (3,583 | ) |        |      | (5.7  | )% |   | $      | 49,918 |   |   | $     | 13,080 |   |  |     | 26.2  | %
|                         | Advertising and other |              |        | 5,759         |   |        |        | 9,109        |   |      |        | (3,350 | ) |        |      | (36.8 | )  |   |        | 16,525 |   |   |       | (7,416 | ) |  |     | (44.9 | )
|                         |                       |              |        |               |   |        |        |              |   |      |        |        |   |        |      |       |    |   |        |        |   |   |       |        |   |  |     |      
|                         |                       | $            | 65,174 |               |   | $      | 72,107 |              |   | $    | (6,933 | )      |   |        | (9.6 | )%    |    | $ | 66,443 |        |   | $ | 5,664 |        |   |  | 8.5 | %    
|                         |                       |              |        |               |   |        |        |              |   |      |        |        |   |        |      |       |    |   |        |        |   |   |       |        |   |  |     |      
|Distribution of revenues |                       |              |        |               |   |        |        |              |   |      |        |        |   |        |      |       |    |   |        |        |   |   |       |        |   |  |     |      
|                         | Subscriptions         |              |        | 91.2          | % |        |        | 87.4         | % |      |        |        |   |        |      |       |    |   |        | 75.1   | % |   |       |        |   |  |     |       |  
|                         | Advertising and other |              |        | 8.8           | % |        |        | 12.6         | % |      |        |        |   |        |      |       |    |   |        | 24.9   | % |   |       |        |   |  |     |       |  
|                         |                       |              |        |               |   |        |        |              |   |      |        |        |   |        |      |       |    |   |        |        |   |   |       |        |   |  |     |      
|                         |                       |              | 100.0  | %             |   |        | 100.0  | %            |   |      |        |        |   |        |      |       |    |   | 100.0  | %      |   |   |       |        |   |  |     |      
|                         |                       |              |        |               |   |        |        |              |   |      |        |        |   |        |      |       |    |   |        |        |   |   |       |        |   |  |     |      

Subscription
revenues.We derive our subscription
revenues from members paying fees to subscribe to our AOLA
country services and to our web-based interactive services, and
from revenues received from America Online related to
subscribers to the AOL-branded service in Puerto Rico.
Subscription revenues do not include amounts paid to us by Banco
Itaú on behalf of its customers for subsidies that it
chooses or was required to make. Such receipts from Banco
Itaú are netted against and recorded as a reduction of
marketing expenses and thus are not accounted for as
subscription revenues. Amounts paid directly to us by
subscribers that exceed any time subsidized by Banco Itaú
are included in subscription revenues. Under the terms of the
revised marketing agreement, Banco Itaú is no longer
required to subsidize its customers who are subscribers to the
co-branded service. As a result, subsidies from Banco Itaú
for its customers were not material for the second half of 2003.
We do not expect subsidies from Banco Itaú for its
customers to be material in future periods. For subscribers that
have elected to pay their subscription fees with credit cards,
we begin to recognize subscription revenues when the fees become
due and are confirmed as collectible. For subscribers that pay
through means other than credit cards, we begin to recognize
subscription revenues when we receive payment.

Advertising and other
revenue.Advertising and other revenue
is derived principally from:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | advertising arrangements under which we receive
    fees for 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 fee;                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | fees we receive from America Online for
    programming services we provide to America Online for use on
    their Latino content area;                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | representation fees we receive from America
    Online for selling advertising on their interactive
    services; and                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | revenue sharing arrangements with local
    telecommunications providers. Because local telephone service in
    Latin America is often metered, the utilization of our AOLA
    country services and of our web-based interactive services by
    our members results in incremental revenues to local
    telecommunications companies. To encourage incremental traffic
    on their local networks by our members, some local providers of
    network access have entered into agreements compensating us for
    routing our traffic on their networks.

21



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| |                      
| | ---------------------
| | Subscription Revenues



| |                                    
| | -----------------------------------
| | Fiscal 2003 Compared to Fiscal 2002

Subscription revenue for the year ended
December 31, 2003 was $59.4 million, a decrease of
$3.6 million, or 5.7%, as compared to $63.0 million in
the year ended December 31, 2002. For 2003, the overall
decrease in subscription revenue as compared to the prior year
was primarily due to currency devaluation. Currency devaluation
reduced revenues by $3.7 million during the 2003 fiscal year.
Excluding the impact of currency devaluation, however,
subscription revenue gains in Puerto Rico were offset by
subscription revenue losses in Brazil, Mexico and Argentina.
Furthermore, in the second half of 2003, losses in paying
subscribers began to drive decreases in total subscription
revenues. Increased competition and reduced marketing
expenditures resulted in a lower level of registrations, which
was insufficient to replace members lost through attrition. This
resulted in a lower number of paying subscribers.

On a sequential quarter basis, reported
subscription revenue declined by 6.8% to $13.8 million in
the fourth quarter of 2003, or by approximately
$1.0 million, from $14.8 million in the quarter ended
September 30, 2003. Subscription revenues were negatively
impacted by declines in paying membership, driven by attrition
of members who had been paying their fees to us. Subscription
revenues have been negatively impacted by an increase in our
member turnover resulting from lower-priced competitors,
including providers of free Internet access in Brazil.
Furthermore, our rate of new member registrations has not been
sufficient to offset membership losses. The rate of new member
registrations has been negatively impacted by our strategy of
targeting higher-value members, by a lower than expected level
of registrations at a significant percentage of our interactive
kiosks located in Banco Itaú branches and by the continued
delay in the implementation of the McDonalds marketing
initiative in Brazil.

Going forward, we expect that subscriber revenue
performance will depend primarily on the success of our
web-based interactive services in attracting new members and
improving overall membership retention. Subscriber revenues will
also be influenced by the success of our Banco Itaú and
McDonalds initiatives in Brazil, since these are our
primary channels for acquiring new registrations. We expect
subscription revenue for 2004 to decrease, as a result of
continued reductions in paid members and as a result of the
increase in the percentage of subscribers to our lower-priced
web-based services versus our higher-priced services. We
anticipate modest growth in subscription revenue to resume in
the second half of 2004, depending on the consumer acceptance of
our web-based services and upon the success of our
McDonalds initiative.



| |                                    
| | -----------------------------------
| | Fiscal 2002 Compared to Fiscal 2001

For the fiscal year ended December 31, 2002,
subscription revenues reached $63.0 million, an increase of
26.2% as compared to $49.9 million in the year ended
December 31, 2001. 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. In constant
currency terms, which exclude the effects of currency
devaluation, subscription revenues increased 45.7% as compared
to the year ended December 31, 2001.



| |                                   
| | ----------------------------------
| | Advertising and Other
    Revenues



| |                                    
| | -----------------------------------
| | Fiscal 2003 Compared to Fiscal 2002

For the year ended December 31, 2003,
revenue from advertising and other was $5.8 million, a
decrease of $3.4 million, or 36.8%, from $9.1 million
in the year ended December 31, 2002. The decrease in
advertising and other revenue resulted primarily from our
failure to convince advertisers to redirect resources from
traditional media channels to our interactive services,
partially offset by increased revenue from America Online for
our programming services related to their Latino content area.
Sequentially, advertising and other revenue in the fourth
quarter of 2003 experienced a decrease of $0.4 million, or
26.9%, from $1.5 million in our fiscal 2003 third quarter,
driven by lower advertising revenue and the loss of revenue from
the expiration of our long-term contract with Hollywood Media
Corp.

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##### Table of Contents



We expect advertising and other revenue to
decrease further during fiscal 2004, driven by continued weak
advertising results and the loss of revenue from the expiration
of our long-term contract with Hollywood Media Corp. and other
long-term advertising agreements. We have not been successful in
convincing advertisers in Latin America to redirect resources
from traditional media channels to online advertising on our
services. The reduction in membership levels we experienced in
2003 and that we expect to experience in the first half of 2004
is also expected to further restrict our ability to generate
revenue from advertising by reducing our ability to generate
consumer impressions. We expect our first quarter 2004
advertising and other revenue to register a significant decline
versus the fourth quarter of 2003. We expect to continue
deriving the substantial majority of our revenues from
subscriptions to our AOLA country services and our web-based
interactive services, rather than from advertising and other
revenues.

As of December 31, 2003, deferred
advertising and other revenue amounted to $0.3 million,
down from $1.3 million at December 31, 2002. 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 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 Media Corp., which expired in October
2003.

During the year ended December 31, 2003,
advertising and other revenue from related parties accounted for
approximately 31.2%, or $1.8 million, of the
$5.8 million recorded for the period, as compared with
$3.2 million in 2002. Advertising revenue from Banco
Itaú amounted to $0.6 million in 2003. Other revenue
from America Online in 2003 was $1.1 million, and consisted
primarily of fees for our programming of America Onlines
Latino content area and of representation fees for advertising
sold on the America Online service in the U.S. Banco
Itaú accounted for the entire amount of fiscal 2002 related
party advertising and other revenue.



| |                                    
| | -----------------------------------
| | Fiscal 2002 Compared to Fiscal 2001

For the year ended December 31, 2002,
revenue from advertising and other declined by
$7.4 million, or 44.9%, to $9.1 million, from
$16.5 million in the year ended December 31, 2001. The
decrease in advertising and other revenues was driven primarily
by the weak advertising market in Latin America, with all our
countries except Puerto Rico recording declines.

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##### Table of Contents



Costs and expenses.The following table presents the components of costs and
expenses for the years ended December 31, 2003,
December 31, 2002 and December 31, 2001.

COSTS AND EXPENSES

|                                                 |                            |                          |   |              |         |        |   |        |         |              |   |         |         |        |  |       |       |    |   |         |         |   |   |         |          |   |  |       |       |   
|------------------------------------------------ | -------------------------- | ------------------------ | - | ------------ | ------- | ------ | - | ------ | ------- | ------------ | - | ------- | ------- | ------ |  | ----- | ----- | -- | - | ------- | ------- | - | - | ------- | -------- | - |  | ----- | ----- | --
|                                                 |                            |                         
|                                                 |                            | Year Ended              
|                                                 |                            |                         
|                                                 |                            | December 31,             |   | December 31, |         |        |   | %      |         | December 31, |   |         |         | %     
|                                                 |                            | 2003                     |   | 2002         |         | Change |   | Change |         | 2001         |   | Change  |         | Change
|                                                 |                            |                          |   |              |         |        |   |        |         |              |   |         |         |       
|                                                 |                            |                         
|(Dollars in thousands)                           |                            |                         
|Costs and expenses:                              |                            |                          |   |              |         |        |   |        |         |              |   |         |         |        |  |       |       |    |   |         |         |   |   |         |          |   |  |      
|                                                 | Cost of revenues           |                          | $ | 56,387       |         |        | $ | 98,695 |         |              | $ | (42,308 | )       |        |  | (42.9 | )%    |    | $ | 128,896 |         |   | $ | (30,201 | )        |   |  | (23.4 | )%   
|                                                 | Sales and marketing        |                          |   | 65,397       |         |        |   | 97,170 |         |              |   | (31,773 | )       |        |  | (32.7 | )     |    |   | 191,024 |         |   |   | (93,854 | )        |   |  | (49.1 | )    
|                                                 | General and administrative |                          |   | 27,051       |         |        |   | 32,871 |         |              |   | (5,820  | )       |        |  | (17.7 | )     |    |   | 41,591  |         |   |   | (8,720  | )        |   |  | (21.0 | )    
|                                                 |                            |                          |   |              |         |        |   |        |         |              |   |         |         |        |  |       |       |    |   |         |         |   |   |         |          |   |  |      
|                                                 |                            | Total costs and expenses |   | $            | 148,835 |        |   | $      | 228,736 |              |   | $       | (79,901 | )      |  |       | (35.5 | )% |   | $       | 361,511 |   |   | $       | (132,775 | ) |  |       | (36.7 | )%
|                                                 |                            |                          |   |              |         |        |   |        |         |              |   |         |         |        |  |       |       |    |   |         |         |   |   |         |          |   |  |      
|As a percentage of total costs and
    expenses: |                            |                          |   |              |         |        |   |        |         |              |   |         |         |        |  |       |       |    |   |         |         |   |   |         |          |   |  |      
|                                                 | Cost of revenues           |                          |   | 37.9         | %       |        |   | 43.1   | %       |              |   |         |         |        |  |       |       |    |   | 35.7    | %       |   |   |         |          |   |  |       |      
|                                                 | Sales and marketing        |                          |   | 43.9         | %       |        |   | 42.5   | %       |              |   |         |         |        |  |       |       |    |   | 52.8    | %       |   |   |         |          |   |  |       |      
|                                                 | General and administrative |                          |   | 18.2         | %       |        |   | 14.4   | %       |              |   |         |         |        |  |       |       |    |   | 11.5    | %       |   |   |         |          |   |  |       |      
|                                                 |                            |                          |   |              |         |        |   |        |         |              |   |         |         |        |  |       |       |    |   |         |         |   |   |         |          |   |  |      
|                                                 |                            | Total costs and expenses |   |              | 100.0   | %      |   |        | 100.0   | %            |   |         |         |        |  |       |       |    |   |         | 100.0   | % |   |         |          |   |  |       |       |   
|                                                 |                            |                          |   |              |         |        |   |        |         |              |   |         |         |        |  |       |       |    |   |         |         |   |   |         |          |   |  |      

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.                                                                                         

We are primarily responsible for the hosting,
technical support, development and billing for our web-based
services. Total out-of-pocket cost associated with the
development and launch of our web-based services in Brazil,
Argentina and Puerto Rico is expected to be $3.3 million.
Of this amount, we incurred approximately $2.8 million in
the twelve months ended December 31, 2003.



| |                                    
| | -----------------------------------
| | Fiscal 2003 Compared to Fiscal 2002

For the year ended December 31, 2003, cost
of revenues was $56.4 million, a decrease of
$42.3 million, or 42.9% as compared with $98.7 million
in the year ended December 31, 2002. The decrease was
driven by lower network and telecommunications costs and member
services costs, reflecting the renegotiation of network unit
costs, including the impact for the full year of zero-port cost
arrangements with telecommunications providers, and the
consolidation and outsourcing of our member services operations.
Hosting costs were also lower, reflecting lower usage, primarily
as a result of our termination of members who were delinquent in
their payments of fees to us. These reductions were in addition
to cost reduction efforts taken in 2002. Product development
costs, which are primarily driven by development needs for our
AOLA country services, also decreased in 2003 as a result of our
strategic focus on web-based services. Cost of revenues in
fiscal 2003 also reflected lower one-time charges

24



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##### Table of Contents



associated with efforts to reduce the size of our
network. Cost of revenues accounted for 37.9% of our total costs
in 2003, down from 43.1% in the prior-year period. Currency
devaluation reduced reported cost of revenues by 2.7%, or
$2.5 million, during the 2003 fiscal year.


Going forward, we expect cost of revenues in 2004
to decrease in absolute terms from levels experienced in fiscal
2003, as we continue to benefit from prior actions taken to
renegotiate our network prices and size and from a full-year
impact of the consolidation and outsourcing of member services
activities.

Cost of revenues paid to related parties
primarily consists of payments made or due to America Online and
its affiliates for the costs of hosting, maintenance, product
development and other technical support services for our country
operations. During the years ended December 31, 2003 and
2002, the cost of these services amounted to $11.7 million
and $21.6 million, respectively. As of December 31,
2003, America Online had billed us approximately
$3.8 million, primarily related to costs from 2002, over
and above amounts we have recorded in our statements of
operations. The difference related to a portion of items under
dispute, primarily for support services provided by America
Online. This dispute was settled in our favor in February 2004
in a manner which is consistent with our historical accounting
treatment and which did not have any cash impact on our
financial condition. America Online is no longer seeking payment
for these amounts. We received a credit for these invoices on
March 18, 2004.



| |                                    
| | -----------------------------------
| | Fiscal 2002 Compared to Fiscal 2001

For the year ended December 31, 2002, our
cost of revenues declined 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 resize our network and call centers to focus on
higher quality members. We achieved this by restricting 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 also included one-time costs of
$5.1 million to reduce the size our network to service the
smaller base of members. Cost of revenues accounted for 43.1% of
our total cost structure during 2002, up from 35.7% in the
comparable prior-year period. Currency devaluation reduced
reported cost of revenues by approximately 13.0%, or
$14.8 million, during the 2002 fiscal year.



| |                    
| | -------------------
| | 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 audited
consolidated financial statements).



| |                                    
| | -----------------------------------
| | Fiscal 2003 Compared to Fiscal 2002

Sales and marketing expense was
$65.4 million in the year ended December 31, 2003, a
decrease of $31.8 million from $97.2 million in the
year ended December 31, 2002. The 32.7% reduction in sales
and marketing expenditures during fiscal 2003 was driven by
reductions in both member acquisition costs and brand marketing.
The reduction in member acquisition costs was achieved through
our continued focus on initiatives designed to target members
who have higher probabilities of becoming and remaining paying
members. Specifically, we significantly reduced the mass mailing
of non-solicited CDs containing our software in favor of
an increased focus on acquiring members through direct customer
interaction channels, primarily through staffed kiosks at high
traffic retail locations. During 2003, we also evaluated the
productivity of our kiosks located at Banco Itaú branches
and at retail locations in Brazil, Mexico and

25



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##### Table of Contents



Puerto Rico, and closed those with lower than
acceptable levels of registrations. As a result, a substantial
majority of the kiosks in operation at the beginning of 2003 at
Banco Itaú branches were closed, as were a majority of the
kiosks at retail locations in Mexico, resulting in additional
savings.


In addition, we also cancelled certain CD
distributions Banco Itaú was obligated to make, but did not
at our request. As a result of the cancellation of marketing
activities Banco Itaú was obligated to make, as per the
terms of our revised marketing agreement, Banco Itaú made a
payment to us of approximately $4.5 million during 2003 in
exchange for advertising on our service in lieu of the marketing
activities they were obligated to undertake. We expect these
payments to continue in the future but the amounts to gradually
decrease over time as per the terms of the revised marketing
agreement. Such payments from Banco Itaú are reflected as
funds received from financing activities in our statement of
cash flows and reduce future marketing expense associated with
the amortization of shares given to Banco Itaú under our
strategic marketing agreement. We have the right to choose to
redeploy or reinstate some promoters in the branches in the
future, in which case we would forego the corresponding payments
from Banco Itaú.

Brand marketing expense was also reduced by
$8.0 million during 2003, despite advertising expenditures
related to the launch of our web-based services. The reduction
was made possible by our increased reliance on third-party
marketing arrangements, such as Banco Itaús
advertisement of our services in accordance with our revised
marketing agreement. We were also able to reduce brand marketing
expenditures as a result of our more targeted marketing efforts.

Currency devaluation reduced sales and marketing
expense in fiscal 2003 by approximately $1.5 million. For
the year ended December 31, 2003, sales and marketing
expenses incurred with related parties were $1.0 million,
excluding amortization expense related to the Banco Itaú
revised marketing agreement. This expense was primarily for
advertising on Time Warner media properties. For the year ended
December 31, 2002, expenses incurred with related parties
were $0.5 million, and were also for advertising on Time
Warner media properties.

For the year ended December 31, 2003, monies
received from Banco Itaú for subsidies it pays on behalf of
its members were approximately $0.9 million, compared with
$3.7 million in 2002. Subsidies paid by Banco Itaú on
behalf of its members largely ceased during the third quarter of
2003 as a result of the revised marketing agreement with Banco
Itaú, under which Banco Itaú is no longer required to
make subsidy payments to us on behalf of its members to the
co-branded service. Amortization expense related to the Banco
Itaú marketing agreement was $41.2 million in 2003 and
$41.8 million in 2002. For a discussion of advertising and
other relationships with Time Warner and Banco Itaú, please
see Item 13. Certain Relationships and Related
Transactions.

We expect to continue focusing our member
acquisition efforts on marketing agreements with third parties,
emphasizing kiosks located in high traffic areas, including bank
branches, retail outlets and restaurants. We have also benefited
from marketing arrangements with telecommunication providers who
provide access for our broadband product in Brazil whereby they
produce and air co-branded television commercials. We expect
sales and marketing expense to further decrease by a modest
amount in 2004 as compared with 2003.



| |                                    
| | -----------------------------------
| | Fiscal 2002 Compared to Fiscal 2001

For the year ended December 31, 2002, sales
and marketing expense was $97.2 million, a decrease of
approximately 49.1%, or $93.8 million, versus the
$191.0 million incurred in the year ended December 31,
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. This change in strategy
resulted in a significant reduction in the mass mailing of
non-solicited CDs containing our software in favor of an
increased focus on acquiring members through direct customer
interaction channels and increased reliance on third party
marketing arrangements. 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.

26



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##### Table of Contents



Excluding the impact of the Banco Itaú
amortization expense, expenditures related to sales and
marketing decreased by $31 million, or 17%, versus the
prior year, as a result of the absence of launch-related
expenditures in 2001 and lower per unit CD and distribution
costs. 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.



| |                           
| | --------------------------
| | General and Administrative

General and administrative expenses consist
primarily of personnel-related expenses, office lease payments,
legal, tax and travel-related expenses, among others.



| |                                    
| | -----------------------------------
| | Fiscal 2003 Compared to Fiscal 2002

For the year ended December 31, 2003,
general and administrative expenses were $27.0 million, a
decrease of $5.8 million, or 17.7%, from $32.9 million
in the fiscal year ended December 31, 2002. The reduction
in general and administrative expense was driven by lower
personnel-related expenses due to employee work force
reductions. Currency devaluations decreased reported general and
administrative expense by approximately $0.6 million during
our 2003 fiscal year.

Our general and administrative costs in the
quarter ended December 31, 2003, decreased by
$0.6 million, or 10.9%, to $5.7 million, from
$6.3 million in the fourth quarter of 2002. The decline in
general and administrative expense was primarily due to lower
staffing levels in the fourth quarter of 2003, as compared to
the prior-year period, and personnel severance expense in the
prior-year period. We expect that our general and administrative
expenses will continue near current levels in 2004.

Both America Online and the Cisneros Group have
in the past provided us with general and administrative
services. In the year ended December 31, 2003, we incurred
general and administrative expenses of $44,000 to America
Online. In the year ended December 31, 2002, we incurred
fees of approximately $1.6 million and $219,000 for support
services provided by America Online and for services provided by
the Cisneros Group, respectively.



| |                                    
| | -----------------------------------
| | Fiscal 2002 Compared to Fiscal 2001

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 year. 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. Reported general and administrative expense for fiscal
2002 was lower by $3.2 million as a result of currency
devaluations experienced during the year.

Interest
Expense.Interest expense consists
almost entirely of interest on our senior convertible notes
outstanding. The increase in interest expense in 2003 was
primarily due to the higher average balance of our senior
convertible notes outstanding ($160.0 million), as compared
with 2002 ($57.3 million). For fiscal 2004, we expect that
our interest expense will remain relatively stable as the
average balance of senior convertible notes outstanding will
remain at current levels. We continue to expect to pay the
interest on the senior convertible notes through the issuance of
additional stock; consequently, interest expense should not have
a cash impact on our financial condition. However, depending on
market conditions at the time, a decision by us to pay the
interest on the senior convertible notes through the issuance of
additional shares of stock could result in significant
additional dilution to our existing shareholders.

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 increase in interest expense was driven by sale of senior
convertible notes to Time Warner for purposes of financing our
business. The agreement to sell the senior convertible to Time
Warner was entered into in March 2002, and the purchase of the
entire amount

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of $160.0 million available under the
agreement was completed during the period ended
December 30, 2002.




| |             
| | ------------
| | Other income

Other income consists primarily of foreign
currency gains and losses and realized gains and losses on
investments. For the year ended December 31, 2003, other
income was $0.9 million, an increase from $0.1 million
in the year ended December 31, 2002. The increase resulted
from interest income on our cash and cash equivalent balances,
which increased as a result of the final sale of senior
convertible notes to Time Warner on December 30, 2002.

For the year ended December 31, 2002, other
income of $139,000, was a decrease 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 Time Warner in connection with
our March 2002 financing. We also incurred an impairment loss of
our investment in Hollywood Media Corp. of approximately $0.8
million during 2002.



| |             
| | ------------
| | Income taxes

For the year ended December 31, 2003, we had
a provision of $4,000 related to income taxes. For the year
ended December 31, 2002 we had a provision of $75,000
related to income taxes. Our income tax expense results from the
application of gross asset taxes in Argentina and Mexico, which
are used as alternative minimum tax systems by the governments
of these countries and may be applied as credits for actual
future income taxes. For additional information regarding income
taxes, see note 9 to our audited consolidated financial
statements.

Liquidity and Capital Resources



| |                     
| | --------------------
| | Material Commitments

The following table summarizes our contractual
obligations at December 31, 2003, and the timing and effect
that such obligations are expected to have on our liquidity and
cash flows in future periods:

|                            |       |                |         |           |  |       |        |        |  |           |        |        |  |   |         |         |  |   |    |    | 
|--------------------------- | ----- | -------------- | ------- | --------- |  | ----- | ------ | ------ |  | --------- | ------ | ------ |  | - | ------- | ------- |  | - | -- | -- | 
|                            |       |               
|                            |       | (in thousands)
|                            |       |               
|                            |       |                |         | Less than |  | 1 - 3 |        | 3 - 5  |  | More than
|Contractual Obligations     |       | Total          |         | 1 year    |  | years |        | years  |  | 5 years  
|                            |       |                |         |           |  |       |        |        |  |          
|Long-Term Debt              |       | $              | 163,231 |           |  | $     |       |        |  | $         |       |        |  | $ | 163,231 |         |  | $ |   |   
|Operating Lease Obligations |       |                | 33,795  |           |  |       | 10,039 |        |  |           | 23,203 |        |  |   | 543     |         |  |   | 10 |   
|Purchase Obligations        |       |                | 1,309   |           |  |       | 1,277  |        |  |           | 32     |        |  |   |        |         |  |   |   |   
|                            |       |                |         |           |  |       |        |        |  |           |        |        |  |   |         |         |  |   |    |   
|                            | Total |                | $       | 198,335   |  |       | $      | 11,316 |  |           | $      | 23,235 |  |   | $       | 163,774 |  |   | $  | 10 | 
|                            |       |                |         |           |  |       |        |        |  |           |        |        |  |   |         |         |  |   |    |   

At December 31, 2003, our material firm
operating commitments for the next five years were approximately
$35.0 million, compared to approximately $48.8 million
at December 31, 2002. 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 primarily as a result of our efforts to reduce the size
of our network to service only members who are timely in their
payments of subscription fees to us, our efforts to reduce the
unit cost of modems, and our reduced office facilities
requirements related to the consolidation of our member services
operations and other workforce reductions. 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. Our
network agreements do not extend beyond 2007; therefore the
foregoing table does not reflect any amounts in 2007 and beyond.
We expect to replace expiring contracts at future dates.

28



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##### Table of Contents



The above table does not include items that are
variable or contingent in nature, but which have a high
likelihood of occurring. Such items include:



| |   |                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | interest on our senior convertible notes
    ($17.5 million per year), except for $3.2 million in
    interest which we will be obligated to pay in cash at the final
    maturity date on March 8, 2007;
|
| |  | hosting, maintenance and product development and
    other services provided by America Online under our Online
    Services Agreement ($11.7 million in 2003), and                                      
|
| |  | accrued, but unpaid, dividends on our preferred
    series B and series C preferred stock (amounting to
    $57.3 million as of December 31, 2003).                                                      

We expect these expenses to continue, although
amounts may vary, in the future.

We also have contractual obligations related to
employee retention agreements with certain key employees. Under
these retention agreements we may be obligated to make payments
amounting up to approximately $2.8 million in 2005. Payment
of these amounts may be accelerated upon certain events.

Additionally, under the terms of our amended and
restated charter on August 7, 2005, we must redeem
approximately 59.4% of the then outstanding series B and C
preferred stock. The exact percentage to be redeemed is subject
to adjustment based on the number of shares we will issue in
payment of interest on our senior convertible notes through
August 7, 2005, which is in turn dependent on the price of
our class A common stock. America Online and Time Warner hold
our series B preferred stock and the Cisneros Group and its
affiliates hold our series C preferred stock. Of the remaining
balance of the series B and C preferred stock outstanding, we
must redeem an additional amount on April 2, 2006 and the
balance on March 8, 2007. As of December 31, 2003, we
had 115,244,559 shares of series B preferred stock outstanding
and 79,518,702 shares of series C preferred stock outstanding.
As per our restated charter, the redemption price per share will
be approximately $2.73, or an aggregate redemption price for the
August 7, 2005 redemption of approximately $350.0 million
(excluding accrued, but unpaid, dividends of approximately $57.3
million which we are required to pay at the time of redemption),
based on the current number of shares of series B and C
preferred stock currently outstanding. The series B and series C
preferred stock may be redeemed, at our option, in cash, by
delivery of shares of class A common stock or by any combination
of cash and shares of class A common stock, valued at its then
fair market value. However, due to our limited cash position, we
expect to redeem these shares of preferred stock through the
issuance of shares of class A common stock. The August 7,
2005 redemption would result in additional dilution to our class
A stockholders of approximately 66%, assuming the fair market
value of our class A common stock at the time of redemption is
$1.31.

29



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##### Table of Contents





| |                  
| | -----------------
| | Current Liquidity

At December 31, 2003, we had cash and cash
equivalents of $32.9 million, and debt in the form of
11% senior convertible notes due March 2007 in the amount
of $160.0 million, as indicated in the table below:

FINANCIAL CONDITION

|                                          |        |              |          |              |  |        |         |         |  |   |         |         |   |  |       |       |   
|----------------------------------------- | ------ | ------------ | -------- | ------------ |  | ------ | ------- | ------- |  | - | ------- | ------- | - |  | ----- | ----- | --
|                                          |        |             
|                                          |        | As of       
|                                          |        |             
|                                          |        | December 31, |          | December 31, |  |        |         | %      
|                                          |        | 2003         |          | 2002         |  | Change |         | Change 
|(Dollars in thousands)                    |        |              |          |              |  |        |         |        
|Cash and cash equivalents                 |        | $            | 32,901   |              |  | $      | 75,501  |         |  | $ | (42,600 | )       |   |  | (56.4 | )%   
|                                          |        |              |          |              |  |        |         |         |  |   |         |         |   |  |       |      
|Current assets                            |        | $            | 44,207   |              |  | $      | 89,121  |         |  | $ | (44,914 | )       |   |  | (50.4 | )%   
|                                          |        |              |          |              |  |        |         |         |  |   |         |         |   |  |       |      
|Total assets                              |        | $            | 55,739   |              |  | $      | 100,274 |         |  | $ | (44,535 | )       |   |  | (44.4 | )%   
|                                          |        |              |          |              |  |        |         |         |  |   |         |         |   |  |       |      
|Working capital                           |        | $            | 17,008   |              |  | $      | 53,001  |         |  | $ | (35,993 | )       |   |  | (67.9 | )%   
|                                          |        |              |          |              |  |        |         |         |  |   |         |         |   |  |       |      
|Current liabilities                       |        | $            | 27,199   |              |  | $      | 36,120  |         |  | $ | (8,921  | )       |   |  | (24.7 | )%   
|                                          |        |              |          |              |  |        |         |         |  |   |         |         |   |  |       |      
|Long-term debt                            |        | $            | 160,000  |              |  | $      | 160,000 |         |  | $ |        |         |   |  |      | %    
|                                          |        |              |          |              |  |        |         |         |  |   |         |         |   |  |       |      
|Stockholders equity (capital deficiency) |        | $            | (132,959 | )            |  | $      | (97,086 | )       |  | $ | (35,873 | )       |   |  | 37.0  | %    
|                                          |        |              |          |              |  |        |         |         |  |   |         |         |   |  |       |      
|Total assets breakdown by segment:        |        |              |          |              |  |        |         |         |  |   |         |         |   |  |       |      
| Brazil                                  |        | $            | 10,069   |              |  | $      | 6,818   |         |  | $ | 3,251   |         |   |  | 47.7  | %    
| Mexico                                  |        |              | 3,575    |              |  |        | 7,035   |         |  |   | (3,460  | )       |   |  | (49.2 | )    
| Argentina                               |        |              | 4,421    |              |  |        | 3,959   |         |  |   | 462     |         |   |  | 11.7  |      
| Puerto Rico                             |        |              | 569      |              |  |        | 605     |         |  |   | (36     | )       |   |  | (6.0  | )    
| Corporate and other                     |        |              | 37,105   |              |  |        | 81,857  |         |  |   | (44,752 | )       |   |  | (54.7 | )    
|                                          |        |              |          |              |  |        |         |         |  |   |         |         |   |  |       |      
|                                          | TOTALS |              | $        | 55,739       |  |        | $       | 100,274 |  |   | $       | (44,535 | ) |  |       | (44.4 | )%
|                                          |        |              |          |              |  |        |         |         |  |   |         |         |   |  |       |      

Current assets at December 31, 2003 were
$44.2 million, a decrease of $44.9 million, or 50.4%,
from $89.1 million at December 31, 2002. The decrease
in current assets was driven almost entirely by the decline in
our cash and cash equivalents position. Current liabilities at
December 31, 2003 were $27.2 million, down
$8.9 million, or 24.7%, from $36.1 million at
December 31, 2002. Current liabilities decreased as a
result of the decrease in our membership base and our efforts to
reduce our overall cost structure. Our working capital balance
at December 31, 2003 was $17.0 million, down from
$53.0 million at the end of the prior year. Long-term debt
of $160.0 million at both December 31, 2003 and 2002
was comprised of the outstanding balance of senior convertible
notes issued to Time Warner.

The decrease in current assets at
December 31, 2003 was attributable to the use of initial
cash balances throughout the year to finance operating losses
and other operating requirements, partially offset by the
receipt of cash from Banco Itaú in lieu of marketing
activities it was obligated to make under the terms of our
revised marketing agreement. 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 previously, our level of expenditures
has been reduced significantly as result of our change in
marketing strategy and product offerings and our efforts to
continue reducing our cost structure.

We anticipate available cash on hand of
$32.9 million as of December 31, 2003, to be
sufficient to fund operations into the first quarter of 2005,
based upon our current operating budget. This represents an
extension in the duration of funding sufficiency from our
previous estimate and is due to our success in reducing
operating losses. Our expectations underlying our current
operating budget and the duration of funding sufficiency are
based upon certain estimates that we believe are commercially
reasonable in relation to our historical experience. These
estimates include paid membership levels and turnover, consumer
acceptance of our web-based interactive services, pricing of our
services and continued cost reductions. These estimates are
subject to a number of risks and uncertainties more particularly
described

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##### Table of Contents



in Risk Factors below and there can
be no assurance that they will turn out to be accurate. As of
March 2004, approximately $1.3 million of our cash on hand
served to collateralize our obligations under
executive-retention agreements and is not, and will not be,
available for general corporate use.


Our planning is focused on achieving operating
cash self-sufficiency beyond 2004 based on available cash on
hand. We also continue to explore various opportunities that
could provide us with additional capital resources in the
future, in the event we are unable to achieve our operating
goals. In addition, we have not identified additional sources of
financing necessary to repay the $160.0 million senior
convertible notes that will be due in March 2007. There can be
no assurance that we will be successful in our efforts to
achieve cash self-sufficiency with available resources, or that
we will be able to identify additional sources of capital to
repay our debt obligations or operate our business, if needed.
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 or the sale of
assets be used to repay the senior convertible notes. In
addition, there is no commitment or obligation from America
Online, the Cisneros Group or Banco Itaú to fund any of our
future requirements. Furthermore, Time Warner has stated that it
does not intend to provide us with additional funding.



| |          
| | ---------
| | Cash Flow

CASH FLOWS & CAPITAL SPENDING

|                                               |                                                          |                                                          |        |              |         |        |        |          |        |              |         |          |         |        |         |        |        |   |        |          |         |   |         |         |        |  |       |        |        |  
|---------------------------------------------- | -------------------------------------------------------- | -------------------------------------------------------- | ------ | ------------ | ------- | ------ | ------ | -------- | ------ | ------------ | ------- | -------- | ------- | ------ | ------- | ------ | ------ | - | ------ | -------- | ------- | - | ------- | ------- | ------ |  | ----- | ------ | ------ | -
|                                               |                                                          |                                                         
|                                               |                                                          | Year Ended                                              
|                                               |                                                          |                                                         
|                                               |                                                          | December 31,                                             |        | December 31, |         |        |        | %        |        | December 31, |         |          |         | %     
|                                               |                                                          | 2003                                                     |        | 2002         |         | Change |        | Change   |        | 2001         |         | Change   |         | Change
|                                               |                                                          |                                                          |        |              |         |        |        |          |        |              |         |          |         |       
|                                               |                                                          |                                                         
|                                               |                                                          | (Dollars in thousands)                                  
|Condensed Cash Flow Statement:                 |                                                          |                                                          |        |              |         |        |        |          |        |              |         |          |         |        |         |        |        |   |        |          |         |   |         |         |        |  |       |       
|Cash and cash equivalents, beginning of period |                                                          | $                                                        | 75,501 |              |         | $      | 46,676 |          |        | $            | 28,825  |          |         |        | 61.8    | %      |        | $ | 63,509 |          |         | $ | (16,833 | )       |        |  | (26.5 | )%    
|                                               |                                                          |                                                          |        |              |         |        |        |          |        |              |         |          |         |        |         |        |        |   |        |          |         |   |         |         |        |  |       |       
|Cash flow (used in) provided by:               |                                                          |                                                          |        |              |         |        |        |          |        |              |         |          |         |        |         |        |        |   |        |          |         |   |         |         |        |  |       |       
|                                               | Operating activities                                     |                                                          |        | (46,210      | )       |        | $      | (127,721 | )      |              | $       | 81,511   |         |        |         | (63.8  | )      |   | $      | (227,892 | )       |   | $       | 100,171 |        |  |       | (44.0  | )     
|                                               | Investing activities                                     |                                                          |        | (1,559       | )       |        |        | (2,026   | )      |              |         | 467      |         |        |         | (23.1  | )      |   |        | 63,165   |         |   |         | (65,191 | )      |  |       | (103.2 | )     
|                                               | Financing activities                                     |                                                          |        | 4,556        |         |        |        | 159,490  |        |              |         | (154,934 | )       |        |         | (97.1  | )      |   |        | 148,853  |         |   |         | 10,637  |        |  |       | 7.1    |       
|                                               | Net (decrease) increase in cash and cash
    equivalents |                                                          |        | 613          |         |        |        | (918     | )      |              |         | 1,531    |         |        |         | (166.8 | )      |   |        | (959     | )       |   |         | 41      |        |  |       | (4.3   | )     
|                                               |                                                          |                                                          |        |              |         |        |        |          |        |              |         |          |         |        |         |        |        |   |        |          |         |   |         |         |        |  |       |       
|                                               |                                                          | Net (decrease) increase in cash and cash
    equivalents |        |              | (42,600 | )      |        |          | 28,825 |              |         |          | (71,425 | )      |         |        | (247.8 | ) |        |          | (16,833 | ) |         |         | 45,658 |  |       |        | (271.2 | )
|                                               |                                                          |                                                          |        |              |         |        |        |          |        |              |         |          |         |        |         |        |        |   |        |          |         |   |         |         |        |  |       |       
|Cash and cash equivalents, end of period       |                                                          | $                                                        | 32,901 |              |         | $      | 75,501 |          |        | $            | (42,600 | )        |         |        | (56.4   | )%     |        | $ | 46,676 |          |         | $ | 28,825  |         |        |  | 61.8  | %     
|                                               |                                                          |                                                          |        |              |         |        |        |          |        |              |         |          |         |        |         |        |        |   |        |          |         |   |         |         |        |  |       |       
|Capital spending by segment:                   |                                                          |                                                          |        |              |         |        |        |          |        |              |         |          |         |        |         |        |        |   |        |          |         |   |         |         |        |  |       |       
| Brazil                                       |                                                          | $                                                        | 998    |              |         | $      | 1,059  |          |        | $            | (61     | )        |         |        | (5.8    | )%     |        | $ | 1,955  |          |         | $ | (896    | )       |        |  | (45.8 | )%    
| Mexico                                       |                                                          |                                                          | 259    |              |         |        | 249    |          |        |              | 10      |          |         |        | 4.0     |        |        |   | 217    |          |         |   | 32      |         |        |  | 14.7  |       
| Argentina                                    |                                                          |                                                          | 136    |              |         |        | 7      |          |        |              | 129     |          |         |        | 1,842.9 |        |        |   | 193    |          |         |   | (186    | )       |        |  | (96.4 | )     
| Puerto Rico                                  |                                                          |                                                          | 157    |              |         |        | 133    |          |        |              | 24      |          |         |        | 18.0    |        |        |   | 61     |          |         |   | 72      |         |        |  | 118.0 |       
| Corporate and other                          |                                                          |                                                          | 9      |              |         |        | 578    |          |        |              | (569    | )        |         |        | 98.4    |        |        |   | 3,572  |          |         |   | (2,994  | )       |        |  | (83.8 | )     
|                                               |                                                          |                                                          |        |              |         |        |        |          |        |              |         |          |         |        |         |        |        |   |        |          |         |   |         |         |        |  |       |       
|                                               |                                                          | $                                                        | 1,559  |              |         | $      | 2,026  |          |        | $            | (467    | )        |         |        | (23.1   | )%     |        | $ | 5,998  |          |         | $ | (3,972  | )       |        |  | (66.2 | )%    
|                                               |                                                          |                                                          |        |              |         |        |        |          |        |              |         |          |         |        |         |        |        |   |        |          |         |   |         |         |        |  |       |       

In the year ended December 31, 2003, we
utilized $46.2 million to fund our operating losses and
working capital activities. Capital expenditures during 2003
were an additional $1.6 million. This was financed through
a reduction in the amount of cash on hand at the beginning of
the year and through $4.5 million received from Banco
Itaú in lieu of marketing activities it was obligated to
undertake under the terms of our revised marketing agreement.
Monies received from Banco Itaú in lieu of marketing
activities are reflected as financing activities. Furthermore,
monies received from Banco Itaú in lieu of marketing
activities result in a reduction of amounts owed to us as a
result of not meeting the targets contained in our revised
marketing agreement, since such amounts are considered revenues
for purposes of

31



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##### Table of Contents



calculating the targets. As a result, we do not
expect to receive material amounts from Banco Itaú for its
failure to meet these targets at the March 2004 measurement date.


Cash used in operating activities in the fourth
quarter of 2003 was $7.5 million, a decrease of 63% from
$20.0 million used in the fourth quarter of 2002 and an
improvement of 21% from $9.5 million, in the third quarter
of 2003. The improvement in cash used in operating activities
was achieved largely through a reduction in our net loss from
operations as a result of lower costs and expenses. Our ending
cash and cash equivalents position of $32.9 million at
December 31, 2003 benefited from a payment from Banco
Itaú to the Company in lieu of certain marketing
activities. We received $1.8 million from Banco Itaú
in the 2003 fourth quarter. We expect to continue to receive
similar payments from Banco Itaú in the future, although
the amounts of these payments are expected to decrease. The
Company expects cash utilization to increase modestly in the
first quarter of 2004, primarily as a result of seasonal working
capital fluctuations.

In the year ended December 31, 2002, our
operations required $127.7 million to fund operating losses
and activities and capital expenditures of $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 Time Warner.



| |                         
| | ------------------------
| | Senior Convertible Notes

On March 8, 2002, we entered into a note
purchase agreement with Time Warner under which Time Warner made
available to us $160.0 million in exchange for our senior
convertible notes due in March 2007. We completed the draw down
of the funds 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 are redeemable by us at any time, 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. However, the interest payment on the final
maturity date must be made in cash only. 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 ending two days prior to the date of payment. On
December 31, 2003, we made our quarterly payment of
interest on the Time Warner notes, which covered the period from
October 1 through December 31, 2003. The interest
payment of approximately $4.5 million was made through the
issuance of 3,024,732 shares of series B preferred stock to
Time Warner, based on an average price of $1.4870 per
share. For the year ended December 31, 2003, we incurred
$17.8 million related to interest payable to Time Warner on the
senior convertible notes and paid such interest through the
issuance of 24,538,240 shares of series B preferred stock, as
compared with $5.2 million paid through the issuance of
10,865,643 shares of series B preferred stock for the year ended
December 31, 2002. We expect to incur approximately
$17.5 million in annual interest expense as long as the
full amount of $160.0 million in senior convertible notes
are outstanding. Given our focus on cash preservation, we expect
to make future payments of interest through the issuance of
additional shares of stock. Depending on market conditions at
the time, a decision to pay the interest on the Time Warner
notes through the issuance of additional shares could result in
significant additional dilution to existing shareholders.

In the event the $160.0 million in senior
convertible notes were to be converted by Time Warner, an
additional 44,150,105 shares of preferred stock would be
issued to Time Warner, increasing the economic ownership by
America Online and its affiliates in AOLA to 55.3% and their
relative voting strength to 66.9%, assuming conversion of the
warrant granted to America Online at the date of our initial
public offering 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

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$56.0 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 Time Warners and America
Onlines relative ownership and voting strength to continue
to increase over the foreseeable future.


Time Warner has granted us waivers for fiscal
2002 and 2003 related to our non-compliance with an affirmative
covenant in the senior convertible notes requiring our auditors
to certify annually that we have not defaulted under the notes.
Our auditors are not able to provide the certification because
it would require them to certify our compliance with
non-quantitative matters. We do not believe we will be able to
obtain this certification in future years either. Moreover,
there can be no assurance that we will receive this waiver for
2004 or receive additional waivers in future years from Time
Warner or any other holder of the senior convertible notes for
any non-compliance by us under this covenant. If we do not
obtain waivers in future years, we will be in default under the
notes and obligated to repay them immediately. At this time, we
do not have sufficient funds to repay the notes and we would
suffer material adverse consequences to our business, financial
condition and results of operations.



| |                     
| | --------------------
| | Historical Financing

From inception through December 31, 2003,
our operations have been 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, 2003
have totaled $711.5 million, net of issuance-related
expenses, as shown in the following table:

Net Proceeds from Historical
Financings

(in thousands)


|                      |  |         |       |        |  |                 |       |          |  |       |       |        |  |       |       |  |  |   |      |  |  |   |       |  |  |   |       | 
|--------------------- |  | ------- | ----- | ------ |  | --------------- | ----- | -------- |  | ----- | ----- | ------ |  | ----- | ----- |  |  | - | ---- |  |  | - | ----- |  |  | - | ----- | 
|                      |  |         |       |        |  | Total           |       |          |  |       |       |        |  |      
|                      |  | America |       | Time   |  | America Online/ |       | Cisneros |  | Banco |       |        |  | Grand
|                      |  | Online  |       | Warner |  | Time Warner     |       | Group    |  | Itaú  |       | Public |  | Total
|                      |  |         |       |        |  |                 |       |          |  |       |       |        |  |      
|Pre-IPO               |  | $       | 50.0  |        |  | $               |      |          |  | $     | 50.0  |        |  | $     | 150.1 |  |  | $ |     |  |  | $ |      |  |  | $ | 200.1 | 
|IPO                   |  |         | 31.3  |        |  |                 |      |          |  |       | 31.3  |        |  |       | 31.3  |  |  |   |     |  |  |   | 140.5 |  |  |   | 203.1 | 
|March 2001            |  |         | 65.8  |        |  |                 |      |          |  |       | 65.8  |        |  |       | 63.3  |  |  |   | 19.7 |  |  |   |      |  |  |   | 148.8 | 
|Sr. Convertible Notes |  |         |      |        |  |                 | 159.5 |          |  |       | 159.5 |        |  |       |      |  |  |   |     |  |  |   |      |  |  |   | 159.5 | 
|                      |  |         |       |        |  |                 |       |          |  |       |       |        |  |       |       |  |  |   |      |  |  |   |       |  |  |   |       | 
|Totals                |  | $       | 147.1 |        |  | $               | 159.5 |          |  | $     | 306.6 |        |  | $     | 244.7 |  |  | $ | 19.7 |  |  | $ | 140.5 |  |  | $ | 711.5 | 
|                      |  |         |       |        |  |                 |       |          |  |       |       |        |  |       |       |  |  |   |      |  |  |   |       |  |  |   |       | 

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 net proceeds of $203.1 million, including
exercise of the over-allotment option by the underwriters. An
additional round of financing took place in March 2001, pursuant
to which we raised $150.0 million (net $148.8 million)
through the sale of stock to America Online, the Cisneros Group
and Banco Itaú. Our last financing took place in March
2002, through the sale of senior convertible notes due March
2007 to Time Warner.

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 or web-based interactive
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 subscriptions to our
interactive services, and to a minor extent from advertising and
other revenues. The accounting policies of

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the reportable segments are the same as those
described in  Critical Accounting
Policies and in the summary of significant accounting
policies contained in Note 2 of our audited consolidated
financial statements.


As of December 31, 2003, 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. Although amounts for Argentina are
not currently material and are not expected to be material in
future reporting periods, we have decided not to consolidate
Argentina with our corporate and other segment in order to
facilitate historical segment comparisons. No single customer
accounted for 10% or more of our total revenues for any of the
periods presented. See Note 6 to our audited consolidated
financial statements for a discussion of segments.

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| |                    
| | -------------------
| | Revenues by Segment

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

REVENUES BY SEGMENT

|                                                            |  |                        |        |              |  |        |        |        |  |              |        |        |  |        |       |    |  |   |        |   |  |   |        |   |  |  |       |   
|----------------------------------------------------------- |  | ---------------------- | ------ | ------------ |  | ------ | ------ | ------ |  | ------------ | ------ | ------ |  | ------ | ----- | -- |  | - | ------ | - |  | - | ------ | - |  |  | ----- | --
|                                                            |  |                       
|                                                            |  | Year Ended            
|                                                            |  |                       
|                                                            |  | December 31,           |        | December 31, |  |        |        | %      |  | December 31, |        |        |  | %     
|                                                            |  | 2003                   |        | 2002         |  | Change |        | Change |  | 2001         |        | Change |  | Change
|                                                            |  |                        |        |              |  |        |        |        |  |              |        |        |  |       
|                                                            |  |                       
|                                                            |  | (Dollars in thousands)
|Revenues by operating segment                               |  |                        |        |              |  |        |        |        |  |              |        |        |  |        |       |    |  |   |        |   |  |   |        |   |  |  |       |   
| Brazil                                                    |  | $                      | 25,267 |              |  | $      | 30,755 |        |  | $            | (5,488 | )      |  |        | (17.8 | )% |  | $ | 26,723 |   |  | $ | 4,032  |   |  |  | 15.1  | % 
| Mexico                                                    |  |                        | 22,726 |              |  |        | 27,164 |        |  |              | (4,438 | )      |  |        | (16.3 | )  |  |   | 25,136 |   |  |   | 2,028  |   |  |  | 8.1   |   
| Argentina                                                 |  |                        | 2,019  |              |  |        | 2,301  |        |  |              | (282   | )      |  |        | (12.3 | )  |  |   | 9,155  |   |  |   | (6,854 | ) |  |  | (74.9 | ) 
| Puerto Rico                                               |  |                        | 14,188 |              |  |        | 11,374 |        |  |              | 2,814  |        |  |        | 24.7  |    |  |   | 4,845  |   |  |   | 6,529  |   |  |  | 134.8 |   
| Corporate and other                                       |  |                        | 974    |              |  |        | 513    |        |  |              | 461    |        |  |        | 89.7  |    |  |   | 584    |   |  |   | (71    | ) |  |  | (12.2 | ) 
|                                                            |  |                        |        |              |  |        |        |        |  |              |        |        |  |        |       |    |  |   |        |   |  |   |        |   |  |  |       |   
|                                                            |  | $                      | 65,174 |              |  | $      | 72,107 |        |  | $            | (6,933 | )      |  |        | (9.6  | )% |  | $ | 66,443 |   |  | $ | 5,664  |   |  |  | 8.5   | % 
|                                                            |  |                        |        |              |  |        |        |        |  |              |        |        |  |        |       |    |  |   |        |   |  |   |        |   |  |  |       |   
|As a percentage of total revenues                           |  |                        |        |              |  |        |        |        |  |              |        |        |  |        |       |    |  |   |        |   |  |   |        |   |  |  |       |   
| Brazil                                                    |  |                        | 38.8   | %            |  |        | 42.7   | %      |  |              |        |        |  |        |       |    |  |   | 40.2   | % |  |   |        |   |  |  |       |   
| Mexico                                                    |  |                        | 34.9   | %            |  |        | 37.7   | %      |  |              |        |        |  |        |       |    |  |   | 37.8   | % |  |   |        |   |  |  |       |   
| Argentina                                                 |  |                        | 3.1    | %            |  |        | 3.2    | %      |  |              |        |        |  |        |       |    |  |   | 13.8   | % |  |   |        |   |  |  |       |   
| Puerto Rico                                               |  |                        | 21.8   | %            |  |        | 15.8   | %      |  |              |        |        |  |        |       |    |  |   | 7.3    | % |  |   |        |   |  |  |       |   
| Corporate and other                                       |  |                        | 1.4    | %            |  |        | 0.6    | %      |  |              |        |        |  |        |       |    |  |   | 0.9    | % |  |   |        |   |  |  |       |   
|                                                            |  |                        |        |              |  |        |        |        |  |              |        |        |  |        |       |    |  |   |        |   |  |   |        |   |  |  |       |   
|                                                            |  |                        | 100.0  | %            |  |        | 100.0  | %      |  |              |        |        |  |        |       |    |  |   | 100.0  | % |  |   |        |   |  |  |       |   
|                                                            |  |                        |        |              |  |        |        |        |  |              |        |        |  |        |       |    |  |   |        |   |  |   |        |   |  |  |       |   
|SUBSCRIPTION REVENUES                                       |  |                        |        |              |  |        |        |        |  |              |        |        |  |        |       |    |  |   |        |   |  |   |        |   |  |  |       |   
|By segment of business                                      |  |                        |        |              |  |        |        |        |  |              |        |        |  |        |       |    |  |   |        |   |  |   |        |   |  |  |       |   
| Brazil                                                    |  | $                      | 22,883 |              |  | $      | 25,229 |        |  | $            | (2,346 | )      |  |        | (9.3  | )% |  | $ | 17,853 |   |  | $ | 7,376  |   |  |  | 41.3  | % 
| Mexico                                                    |  |                        | 21,152 |              |  |        | 24,906 |        |  |              | (3,754 | )      |  |        | (15.1 | )  |  |   | 19,579 |   |  |   | 5,327  |   |  |  | 27.2  |   
| Argentina                                                 |  |                        | 1,675  |              |  |        | 1,856  |        |  |              | (181   | )      |  |        | (9.8  | )  |  |   | 7,389  |   |  |   | (5,533 | ) |  |  | (74.9 | ) 
| Puerto Rico                                               |  |                        | 13,595 |              |  |        | 10,855 |        |  |              | 2,740  |        |  |        | 25.2  |    |  |   | 4,724  |   |  |   | 6,131  |   |  |  | 129.8 |   
| Corporate and other                                       |  |                        | 110    |              |  |        | 152    |        |  |              | (42    | )      |  |        | (27.6 | )  |  |   | 373    |   |  |   | (221   | ) |  |  | (59.2 | ) 
|                                                            |  |                        |        |              |  |        |        |        |  |              |        |        |  |        |       |    |  |   |        |   |  |   |        |   |  |  |       |   
|                                                            |  | $                      | 59,415 |              |  | $      | 62,998 |        |  | $            | (3,583 | )      |  |        | (5.7  | )% |  | $ | 49,918 |   |  | $ | 13,080 |   |  |  | 26.2  | % 
|                                                            |  |                        |        |              |  |        |        |        |  |              |        |        |  |        |       |    |  |   |        |   |  |   |        |   |  |  |       |   
|As a percentage of total subscription
    revenues          |  |                        |        |              |  |        |        |        |  |              |        |        |  |        |       |    |  |   |        |   |  |   |        |   |  |  |       |   
| Brazil                                                    |  |                        | 38.5   | %            |  |        | 40.0   | %      |  |              |        |        |  |        |       |    |  |   | 35.8   | % |  |   |        |   |  |  |       |   
| Mexico                                                    |  |                        | 35.6   | %            |  |        | 39.5   | %      |  |              |        |        |  |        |       |    |  |   | 39.2   | % |  |   |        |   |  |  |       |   
| Argentina                                                 |  |                        | 2.8    | %            |  |        | 2.9    | %      |  |              |        |        |  |        |       |    |  |   | 14.8   | % |  |   |        |   |  |  |       |   
| Puerto Rico                                               |  |                        | 22.9   | %            |  |        | 17.2   | %      |  |              |        |        |  |        |       |    |  |   | 9.5    | % |  |   |        |   |  |  |       |   
| Corporate and other                                       |  |                        | 0.2    | %            |  |        | 0.4    | %      |  |              |        |        |  |        |       |    |  |   | 0.7    | % |  |   |        |   |  |  |       |   
|                                                            |  |                        |        |              |  |        |        |        |  |              |        |        |  |        |       |    |  |   |        |   |  |   |        |   |  |  |       |   
|                                                            |  |                        | 100.0  | %            |  |        | 100.0  | %      |  |              |        |        |  |        |       |    |  |   | 100.0  | % |  |   |        |   |  |  |       |   
|                                                            |  |                        |        |              |  |        |        |        |  |              |        |        |  |        |       |    |  |   |        |   |  |   |        |   |  |  |       |   
|ADVERTISING AND OTHER REVENUES                              |  |                        |        |              |  |        |        |        |  |              |        |        |  |        |       |    |  |   |        |   |  |   |        |   |  |  |       |   
|By segment of business                                      |  |                        |        |              |  |        |        |        |  |              |        |        |  |        |       |    |  |   |        |   |  |   |        |   |  |  |       |   
| Brazil                                                    |  | $                      | 2,384  |              |  | $      | 5,526  |        |  | $            | (3,142 | )      |  |        | (56.9 | )% |  | $ | 8,870  |   |  | $ | (3,344 | ) |  |  | 70    |   
| Mexico                                                    |  |                        | 1,574  |              |  |        | 2,258  |        |  |              | (684   | )      |  |        | (30.3 | )  |  |   | 5,557  |   |  |   | (3,299 | ) |  |  | (59.4 | ) 
| Argentina                                                 |  |                        | 344    |              |  |        | 445    |        |  |              | (101   | )      |  |        | (22.7 | )  |  |   | 1,766  |   |  |   | (1,321 | ) |  |  | (74.8 | ) 
| Puerto Rico                                               |  |                        | 593    |              |  |        | 519    |        |  |              | 74     |        |  |        | 14.3  |    |  |   | 121    |   |  |   | 398    |   |  |  | 328.9 |   
| Corporate and other                                       |  |                        | 864    |              |  |        | 361    |        |  |              | 503    |        |  |        | 139.2 |    |  |   | 211    |   |  |   | 150    |   |  |  | 71.1  |   
|                                                            |  |                        |        |              |  |        |        |        |  |              |        |        |  |        |       |    |  |   |        |   |  |   |        |   |  |  |       |   
|                                                            |  | $                      | 5,759  |              |  | $      | 9,109  |        |  | $            | (3,350 | )      |  |        | (36.8 | )% |  | $ | 16,525 |   |  | $ | (7,416 | ) |  |  | (44.9 | )%
|                                                            |  |                        |        |              |  |        |        |        |  |              |        |        |  |        |       |    |  |   |        |   |  |   |        |   |  |  |       |   
|As a percentage of total advertising and other
    revenues |  |                        |        |              |  |        |        |        |  |              |        |        |  |        |       |    |  |   |        |   |  |   |        |   |  |  |       |   
| Brazil                                                    |  |                        | 41.4   | %            |  |        | 60.7   | %      |  |              |        |        |  |        |       |    |  |   | 53.7   | % |  |   |        |   |  |  |       |   
| Mexico                                                    |  |                        | 27.3   | %            |  |        | 24.8   | %      |  |              |        |        |  |        |       |    |  |   | 33.6   | % |  |   |        |   |  |  |       |   
| Argentina                                                 |  |                        | 6.0    | %            |  |        | 4.9    | %      |  |              |        |        |  |        |       |    |  |   | 10.7   | % |  |   |        |   |  |  |       |   
| Puerto Rico                                               |  |                        | 10.3   | %            |  |        | 5.7    | %      |  |              |        |        |  |        |       |    |  |   | 0.7    | % |  |   |        |   |  |  |       |   
| Corporate and other                                       |  |                        | 15.0   | %            |  |        | 3.9    | %      |  |              |        |        |  |        |       |    |  |   | 1.3    | % |  |   |        |   |  |  |       |   
|                                                            |  |                        |        |              |  |        |        |        |  |              |        |        |  |        |       |    |  |   |        |   |  |   |        |   |  |  |       |   
|                                                            |  |                        | 100.0  | %            |  |        | 100.0  | %      |  |              |        |        |  |        |       |    |  |   | 100.0  | % |  |   |        |   |  |  |       |   
|                                                            |  |                        |        |              |  |        |        |        |  |              |        |        |  |        |       |    |  |   |        |   |  |   |        |   |  |  |       |   

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| |                                    
| | -----------------------------------
| | Fiscal 2003 Compared to Fiscal 2002

For the year ended December 31, 2003, our
total consolidated revenues were $65.2 million, a decrease
of 9.6% from $72.1 million in the year ended
December 31, 2002. The decrease was driven primarily by
declines in Brazil and Mexico, which were partially offset by
increases in Puerto Rico and corporate and other. The decrease
in total revenues was driven by declines in both revenue from
subscriptions and revenue from advertising and other.

Total revenues in 2003 in Brazil, which remained
our largest segment at 38.8% of total revenues, fell by 17.8% to
$25.3 million in 2003, from $30.8 million in 2002. The
decrease was driven by reductions in both advertising and other
revenue and lower subscription revenue. Currency devaluation
reduced reported total revenues by $1.2 million in 2003, as
compared with 2002. Advertising and other revenue fell by
$3.1 million, or 56.9%, in 2003. Subscription revenue in
Brazil also declined by $2.3 million, or 9.3%, during the
year. The decrease in subscription revenue in Brazil was driven
by both the loss of paying membership and currency devaluation.
Competition from low-cost and free Internet service providers in
Brazil during 2003 placed us at a pricing disadvantage that
resulted in increased membership turnover, especially among
members of our AOLA country service in Brazil. Membership was
also negatively impacted by a decrease in new member
registration rates caused by the reduction in marketing activity
from our closing of inefficient and unproductive kiosks at both
Banco Itaú and retail locations, and from the delays in the
implementation of our McDonalds marketing agreement.

In September 2003, we launched our web-based
interactive services in Brazil, in order to address certain of
our competitive disadvantages, including pricing. Early
indications are that the web-based services will result in
improved retention as compared with our AOLA country service in
Brazil, although there can be no assurance that this will
continue. The pricing of our web-based services is lower than
that of our AOLA country service. Consequently, revenue per
member from the web-based service will be lower. Furthermore,
approximately 38% of members to our web-based services migrated
from our AOLA country service. Our Banco Itaú membership
levels stabilized in the fourth quarter of 2003, due primarily
to the introduction of our web-based services. We do not yet
know if the early indications of improvements in retention and
Banco Itaú membership achieved by our web-based services
will be sufficient to offset lost revenues from our AOLA country
service in Brazil, or be able to assist us in our goal to
achieve operating cash self-sufficiency.

For the year ended December 31, 2003, total
revenues from Mexico were $22.7 million, a decrease of
$4.4 million, or 16.3%, from $27.2 million in the
prior year. Mexico continued as our second largest segment in
fiscal 2003, accounting for 34.9% of total revenues. The
decrease in total revenues from Mexico was driven primarily by
lower subscription revenue, which fell by approximately
$3.8 million, or 15.1% from the prior year. The decrease in
subscription revenue was caused by a reduction in the number of
paid members, and by an increase in the number of members
choosing long-term prepaid plans which are sold at a discount to
our monthly, unlimited usage plan. Currency devaluation also
reduced reported revenue from Mexico by $2.5 million, or
10%. Advertising and other revenue in Mexico also declined by
approximately $0.7 million, or by 30.3%, to
$1.6 million in 2003.

Total revenues from Puerto Rico increased by
24.7% to $14.2 million in the year ended December 31,
2003, up from $11.4 million in the prior year. This
increase was driven primarily by higher subscription revenue.
Puerto Rico accounted for 21.8% of total revenues, as compared
with 15.8% of total revenues in 2002. Puerto Rico continued as
our third largest segment in 2003, although it increased its
relative share of our total revenues. Our rate of increase in
subscription revenue in Puerto Rico, however, decreased in 2003
from 2002, as we believe we neared saturation of the
premium-tiered market segment in Puerto Rico. We estimate that
the premium tier of the Puerto Rican market represents 20% of
the total addressable market in Puerto Rico, and that we are
market leaders in the premium segment. We launched a web-based
product offering Internet connectivity and minimal content and
email features in February 2004, which we hope will allow us to
address the low-cost segment of the Puerto Rican market. We do
not yet have an indication of consumer acceptance of our
web-based product in Puerto Rico or the extent of potential
migration from the AOL-branded service in Puerto Rico.

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Total revenues in Argentina in the year ended
December 31, 2003 decreased by $0.3 million, or 12.3%
to $2.0 million, from $2.3 million in the prior year.
The decrease was driven by a decline in subscription revenue of
9.8%, or $0.2 million, and was caused by the loss of paid
membership during the year, even though the Internet market grew
in the past year in Argentina. Advertising and other revenue
also decreased by 22.7%, or $0.1 million. Argentina
accounted for 3.1% of total revenues in fiscal 2003.

Total revenues from our corporate and other
segment increased to $1.0 million in the year ended
December 31, 2003, up from $0.5 million in 2002.
Revenues in our corporate and other segment are comprised
primarily of advertising and other revenue. During 2003,
approximately $0.7 million was derived from our provision
of programming services to America Online for the Latino content
area of America Onlines U.S. service. Our agreement
with America Online expired in February 2004. We expect revenues
derived from our programming for the Latino content area of the
U.S. service to decrease to approximately $450,000 in 2004
if we are able to finalize a proposed arrangement with America
Online. There can be no assurance that we will be able to reach
agreement with America Online regarding our potential provision
of these services.



| |                                    
| | -----------------------------------
| | Fiscal 2002 Compared to Fiscal 2001

For the year ended December 31, 2002, our
total revenues increased to $72.1 million, up 8.5% from
$66.4 million in 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, 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, up from
$25.1 million in the prior year, and accounted for 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 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 $11.4 million, up from
$4.9 million in the year ended December 31, 2001. The
increase was 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.

For the year ended December 31, 2002, total
revenues from Argentina decreased by 74.9% to $2.3 million,
as compared with $9.2 million in the year ended
December 31, 2001. The decline was driven by lower 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.

During fiscal 2002, total revenue from our
corporate and other segment was $0.5 million, and accounted
for 0.6% of our total revenues. Subscription revenue in the
corporate and other segment was $152,000, and consisted of
subscription fees from members to the CompuServe Classic service
in Latin American countries where we did not have operations.
The CompuServe Classic service was largely 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 Latino content area of America
Onlines U.S. service.

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

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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.




| |                            
| | ---------------------------
| | Operating Losses by Segment

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

INCOME BY SEGMENT

|                                                   |  |                        |         |              |  |        |          |        |  |              |        |        |  |        |       |    |  |   |          |   |  |   |         |  |  |  |       |  
|-------------------------------------------------- |  | ---------------------- | ------- | ------------ |  | ------ | -------- | ------ |  | ------------ | ------ | ------ |  | ------ | ----- | -- |  | - | -------- | - |  | - | ------- |  |  |  | ----- | -
|                                                   |  |                       
|                                                   |  | Year Ended            
|                                                   |  |                       
|                                                   |  | December 31,           |         | December 31, |  |        |          | %      |  | December 31, |        |        |  | %     
|                                                   |  | 2003                   |         | 2002         |  | Change |          | Change |  | 2001         |        | Change |  | Change
|                                                   |  |                        |         |              |  |        |          |        |  |              |        |        |  |       
|                                                   |  |                       
|                                                   |  | (Dollars in thousands)
|Income/(loss) from operations by
    segment:      |  |                        |         |              |  |        |          |        |  |              |        |        |  |        |       |    |  |   |          |   |  |   |         |  |  |  |       |  
| Brazil                                           |  | $                      | (60,458 | )            |  | $      | (95,447  | )      |  | $            | 34,989 |        |  |        | (36.7 | )% |  | $ | (147,731 | ) |  | $ | 52,284  |  |  |  | 35.4  | %
| Mexico                                           |  |                        | (7,649  | )            |  |        | (37,268  | )      |  |              | 29,619 |        |  |        | (79.5 | )  |  |   | (71,550  | ) |  |   | 34,282  |  |  |  | 47.9  |  
| Argentina                                        |  |                        | (1,683  | )            |  |        | (3,141   | )      |  |              | 1,458  |        |  |        | (46.4 | )  |  |   | (39,663  | ) |  |   | 36,522  |  |  |  | 92.1  |  
| Puerto Rico                                      |  |                        | 2,495   |              |  |        | 956      |        |  |              | 1,539  |        |  |        | 161.0 |    |  |   | (7,455   | ) |  |   | 8,411   |  |  |  | 112.8 |  
| Corporate and other                              |  |                        | (16,366 | )            |  |        | (21,729  | )      |  |              | 5,363  |        |  |        | (24.7 | )  |  |   | (28,669  | ) |  |   | 6,940   |  |  |  | 24.2  |  
|                                                   |  |                        |         |              |  |        |          |        |  |              |        |        |  |        |       |    |  |   |          |   |  |   |         |  |  |  |       |  
|                                                   |  | $                      | (83,661 | )            |  | $      | (156,629 | )      |  | $            | 72,968 |        |  |        | (46.6 | )% |  | $ | (295,068 | ) |  | $ | 138,439 |  |  |  | 46.9  | %
|                                                   |  |                        |         |              |  |        |          |        |  |              |        |        |  |        |       |    |  |   |          |   |  |   |         |  |  |  |       |  
|As a percentage of total loss from
    operations: |  |                        |         |              |  |        |          |        |  |              |        |        |  |        |       |    |  |   |          |   |  |   |         |  |  |  |       |  
| Brazil                                           |  |                        | 72.3    | %            |  |        | 60.9     | %      |  |              |        |        |  |        |       |    |  |   | 50.1     | % |  |   |         |  |  |  |       |  
| Mexico                                           |  |                        | 9.1     |              |  |        | 23.8     |        |  |              |        |        |  |        |       |    |  |   | 24.2     |   |  |   |         |  |  |  |       |  
| Argentina                                        |  |                        | 2.0     |              |  |        | 2.0      |        |  |              |        |        |  |        |       |    |  |   | 13.4     |   |  |   |         |  |  |  |       |  
| Puerto Rico                                      |  |                        | (3.0    | )            |  |        | (0.6     | )      |  |              |        |        |  |        |       |    |  |   | 2.5      |   |  |   |         |  |  |  |       |  
| Corporate and other                              |  |                        | 19.6    |              |  |        | 13.9     |        |  |              |        |        |  |        |       |    |  |   | 9.8      |   |  |   |         |  |  |  |       |  
|                                                   |  |                        |         |              |  |        |          |        |  |              |        |        |  |        |       |    |  |   |          |   |  |   |         |  |  |  |       |  
|                                                   |  |                        | 100.0   | %            |  |        | 100.0    | %      |  |              |        |        |  |        |       |    |  |   | 100.0    | % |  |   |         |  |  |  |       |  
|                                                   |  |                        |         |              |  |        |          |        |  |              |        |        |  |        |       |    |  |   |          |   |  |   |         |  |  |  |       |  

Our loss from operations in the year ended
December 31, 2003 was $83.7 million, a decrease of
$73.0 million, or 46.6%, from a loss of $156.6 million
in the year-ended December 31, 2002. Brazil, Mexico,
Argentina and our corporate and other segment all significantly
reduced their losses, while profit from Puerto Rico increased
during the year. The reduced segment losses were primarily
achieved by lower telecommunications, network and member
services expense in cost of revenues, and lower sales and
marketing expense, which offset decreases in revenues. Currency
devaluations reduced reported costs and expenses by
$4.6 million in 2003.

In the year ended December 31, 2003, Brazil
reduced its year-over-year loss by 36.7% to $60.5 million,
an improvement from a loss of $95.4 million in the prior
year. Approximately $41.2 million of the loss in 2003 and
$41.8 million of the loss in 2002 is expense related to the
amortization of the shares given to Banco Itaú in
consideration for its entering into the strategic marketing
agreement with us, a non-cash charge. Our Mexico segment loss
declined by 79.5% to $7.6 million during the 2003 fiscal
year, down from a loss of $37.3 million in the prior year.
Argentinas loss decreased by 46.4% to $1.7 million.
Our corporate and other segment loss was reduced by 30.5% to
$15.1 million, primarily as a result of workforce cost
reduction efforts and abandonment of leased office space in
2002. Puerto Rico reported income of $2.5 million during
2003, up from $1.0 million in the prior-year period. The
increase in Puerto Rico was driven by higher average paid
membership levels.

Our loss from operations for the year ended
December 31, 2002 decreased to $156.6 million, from
$295.1 million in the prior year 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 a loss of $71.6 million
in 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

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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 workforce cost reduction efforts and the
abandonment of leased office space.




| |                                           
| | ------------------------------------------
| | Total and Long-Lived Assets by
    Segment

Our total and long-lived assets on a segment
basis are as follows. Long-lived assets are comprised primarily
of fixed assets and capitalized product development and other
intangible assets for each period presented:

|                                   |  |                        |        |              |  |        |         |        |  |   |         |   |  |  |       |   
|---------------------------------- |  | ---------------------- | ------ | ------------ |  | ------ | ------- | ------ |  | - | ------- | - |  |  | ----- | --
|                                   |  |                       
|                                   |  | As of                 
|                                   |  |                       
|                                   |  | December 31,           |        | December 31, |  |        |         | %     
|                                   |  | 2003                   |        | 2002         |  | Change |         | Change
|                                   |  |                        |        |              |  |        |         |       
|                                   |  |                       
|                                   |  | (Dollars in thousands)
|Total assets breakdown by segment: |  |                        |        |              |  |        |         |        |  |   |         |   |  |  |       |   
| Brazil                           |  | $                      | 10,069 |              |  | $      | 6,818   |        |  | $ | 3,251   |   |  |  | 47.7  | % 
| Mexico                           |  |                        | 3,575  |              |  |        | 7,035   |        |  |   | (3,460  | ) |  |  | (49.2 | ) 
| Argentina                        |  |                        | 4,421  |              |  |        | 3,959   |        |  |   | 462     |   |  |  | 11.7  |   
| Puerto Rico                      |  |                        | 569    |              |  |        | 605     |        |  |   | (36     | ) |  |  | (6.0  | ) 
| Corporate and other              |  |                        | 37,105 |              |  |        | 81,857  |        |  |   | (44,752 | ) |  |  | (54.7 | ) 
|                                   |  |                        |        |              |  |        |         |        |  |   |         |   |  |  |       |   
|                                   |  | $                      | 55,739 |              |  | $      | 100,274 |        |  | $ | (44,535 | ) |  |  | (99.0 | )%
|                                   |  |                        |        |              |  |        |         |        |  |   |         |   |  |  |       |   
|Long-lived assets:                 |  |                        |        |              |  |        |         |        |  |   |         |   |  |  |       |   
| Brazil                           |  | $                      | 2,381  |              |  | $      | 2,528   |        |  | $ | (147    | ) |  |  | (5.8  | )%
| Mexico                           |  |                        | 593    |              |  |        | 1,304   |        |  |   | (711    | ) |  |  | (54.6 | ) 
| Argentina                        |  |                        | 282    |              |  |        | 304     |        |  |   | (22     | ) |  |  | (7.3  | ) 
| Puerto Rico                      |  |                        | 232    |              |  |        | 254     |        |  |   | (22     | ) |  |  | (8.6  | ) 
| Corporate and other              |  |                        | 1,283  |              |  |        | 2,593   |        |  |   | (1,310  | ) |  |  | (50.5 | ) 
|                                   |  |                        |        |              |  |        |         |        |  |   |         |   |  |  |       |   
|                                   |  | $                      | 4,771  |              |  | $      | 6,983   |        |  | $ | (2,212  | ) |  |  | (31.7 | )%
|                                   |  |                        |        |              |  |        |         |        |  |   |         |   |  |  |       |   

At December 31, 2003, we had total assets of
$55.7 million, a decrease of $44.5 million as compared
with total assets of $100.3 million at December 31,
2002. At December 31, 2003, our assets were primarily
concentrated in our corporate and other sector, which at
$37.1 million accounted for 66.6% of total assets. Cash and
cash equivalent balances at December 31, 2003, of
$32.9 million accounted for 59.1% of total assets and 88.7%
of assets in our corporate and other segment. Assets located in
Brazil, Mexico, Argentina and Puerto Rico amounted to
$10.1 million, $3.6 million, $4.4 million and
$0.6 million at December 31, 2003, respectively, and
consisted primarily of accounts receivable and prepaid expenses.
Fixed assets and capitalized product development accounted for
$4.8 million of total assets. Of the assets located in
Argentina, $4.0 million corresponded to our prepaid
value-added tax position.

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 81.7% of total assets.
Cash and cash equivalent balances, which increased at year-end
by the final issuance of senior convertible notes to Time Warner
in the amount of $67.0 million on December 30, 2002,
represented $74.6 million of total assets. 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 corresponded 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.

The year-over-year decrease in long-lived assets
located in the operating countries resulted mainly from the
amortization 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 Brazil and Mexico
was also

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impacted by write-off of leasehold improvements
associated with the abandonment of our leased office space as
part of our consolidation of customer call centers.


Depreciation and amortization expense for the
year ended December 31, 2003 totaled $3.7 million, and
was primarily incurred in Brazil and our corporate and other
segments. Depreciation and amortization expense for the year
ended December 31, 2002 totaled $5.0 million.

Capital expenditures for long-lived assets in the
year ended December 31, 2003 totaled $1.6 million,
down from $2.0 million in the year ended December 31,
2002. Brazil accounted for most of capital spending in 2003,
with $1.0 million. Expenditures on capital assets in the
year ended December 31, 2002 amounted to $2.0 million,
which Brazil and our corporate and other segments accounting for
the majority with $1.0 million and $0.6 million,
respectively.

Seasonality

We expect subscriber registrations 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 from the southern
hemisphere countries has been offset by the counter-balancing
effects of Mexico and Puerto Rico, which are in the northern
hemisphere. Therefore, we have not experienced pronounced
seasonality to date in our business.

Critical Accounting Policies

We believe the following represent our critical
accounting policies as contemplated by FRR 72. For a summary of
all our significant accounting policies, including the critical
accounting policies discussed below, see Note 2 to our
audited consolidated financial statements.



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

For subscribers in Brazil, Mexico and Argentina
that have elected to pay their subscription fees with credit
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, we
do not begin to recognize subscription revenues until the cash
payment is received. Subscribers to the AOL-branded service in
Puerto Rico pay their membership fees directly to America
Online. Revenue from subscribers in 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
future.

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 had
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 that it chose
or was required to make were recorded as a reduction of
marketing expenses and not as subscriber revenues. Amounts paid
directly to us by subscribers that exceeded the time subsidized
by Banco Itaú were included in subscription revenues. Were
we to have recognized payments from Banco Itaú as revenues,
our subscriber revenues and sales and marketing expense would
have been higher than reported. Under the terms of the revised
marketing agreement, Banco Itaú is not required to
subsidize its customers, although it may choose to do so. To the
extent any additional customer subsidies are received from Banco
Itaú, we will continue to record such subsidies as
reductions in marketing expenses. Subsidies from Banco Itaú
on behalf of its customers largely ceased in the second half of
2003.

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| |                                       
| | --------------------------------------
| | Cost of Revenues  Zero Port
    Costs

We have entered into zero-cost agreements with
telecommunications companies who provide us with modem ports
that are used by our customers to access our interactive
services and the Internet. Under these agreements, we provide
the telecommunications providers with advertising in exchange
for the rental fees of the ports. We credit the value of the
advertising we provide against our telecommunications expense in
cost of revenues because we are not able to reliably determine
the fair value of the ports under these arrangements. As a
consequence, our cost of revenues does not reflect any expense
for ports provided to us under these arrangements.

Were we able to value the fair value of the ports
received, we would recognize incremental revenue for the value
of the advertising provided. We would also recognize expense for
the value of the ports. Although the profit impact of this
alternative treatment would be neutral, we would report both
higher revenues and higher expense.



| |                                                               
| | --------------------------------------------------------------
| | Valuation of Accounts Receivable 
    Allowances for Bad Debt

We estimate that the carrying amount of our trade
accounts receivable, which are primarily from subscription 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 provisions to the allowance of
approximately $25,000 in the year ended December 31, 2003,
$0.5 million in the year ended December 31, 2002 and $2.2
million in the year ended December 31, 2001. Write-offs
against the allowance totaled $0.4 million,
$0.8 million and $0.7 million in the years ended
December 31, 2003, 2002 and 2001, respectively.

As of December 31, 2003, we had a
value-added tax (VAT) receivable from the Argentine
government of approximately $4.0 million. This receivable, which
arose in the normal conduct of our business, is recoverable as
we make sales in Argentina and make collections from our
customers. Given current economic conditions in Argentina, the
period of collection is likely to exceed five 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. We have not
established any valuation allowance for this asset.



| |                    
| | -------------------
| | 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 that 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), as amended by SFAS
No. 148, 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

41



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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, 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. Total expense recognized in relation to the granting
of stock options issued below market price was limited to
approximately $240,000 in the year ended December 31, 2003,
$301,000 in the year ended December 31, 2002, and $324,000
in the year ended December 31, 2001, related to an options
grant issued to our Chief Executive Officer. Had we accounted
for stock options issued to our employees using the fair value
method, we would have had a stock-based compensation credit of
$61,000 in the year ended December 31, 2003, and a
stock-based compensation expense of $5.3 million and $15.1
million in the years ending December 31, 2002 and 2001,
respectively.

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:
efforts to improve the quality of our membership base and the
results of those efforts, migration of members from our AOLA
country services to our web-based interactive services, the
expectation that our web-based interactive services will or will
not become our primary product offering in particular markets,
future membership levels, future revenues, the benefits we
expect to receive from our strategic alliance with Banco
Itaú and our amended marketing agreement with
McDonalds in Brazil, the expected implementation of our
amended marketing agreement with McDonalds in Brazil,
future marketing efforts, future cost of revenues and future
costs and expenses, future losses, the method of payment of
interest on the Time Warner notes and the amount of such
dividends, the method of redemption of our preferred stock, our
expectation that current cash on hand will be sufficient to fund
operations into the first quarter of 2005, 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, penalties and other payments we expect to receive from
Banco Itaú, the effect of material firm operating
commitments on our liquidity and cash flows, America
Onlines and Time Warners future ownership levels and
voting strength, the expected impact of current legal
proceedings, margins for our broadband product offering, future
payments to related parties, future changes in
telecommunications legislation in Latin America and the impact
of such changes, our exposure to foreign currency fluctuations,
and America Onlines ability to protect our intellectual
property rights and the adequacy of our network infrastructure.

Risk Factors

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



| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | We have experienced substantial losses and we
    may not achieve or maintain profitability or sustain our
    business

We incurred cumulative net operating losses of
approximately $852.6 million from December 15, 1998,
the date of our inception, through December 31, 2003. We
expect to continue to incur additional losses. We cannot predict
what impact, if any, continued losses will have on our ability
to finance and sustain our operations in the future. We will
need to generate significant revenues to achieve profitability
and we may not be able to do so.

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| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | If our membership base continues to decrease,
    our short-term liquidity will be negatively impacted.

Our liquidity over the next year will be
dependent upon maintaining our membership base. If our
membership turnover increases and our membership base decreases,
our short-term liquidity will be negatively impacted.



| |                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because America Online, Time Warner, the
    Cisneros Group and Banco Itaú do not have any commitment to
    fund our future 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 our cash on hand will be
sufficient to fund operations only into the first quarter of
2005, based upon our current operating budget. In addition, in
March 2007, we will require $160.0 million to repay our senior
convertible notes. Our principal stockholders have no obligation
to provide additional financing to cover our future needs and
Time Warner has stated that it does not plan to provide us with
additional funding. Furthermore, Time Warner is not obligated to
refinance our senior convertible notes.

There can be no assurance that additional funding
can be obtained from other parties on favorable terms, or if at
all. If additional financing were to be obtained through the
sale of additional equity or debt securities, or by entering
into a credit facility, there is no assurance that the holders
of the senior convertible notes issued to Time Warner 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.



| |                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | America Online, Time Warner 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/Time Warner and the
Cisneros Group operate in the interactive services and media
industries, their current control of approximately 57.3%, and
39.9%, 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, Time
Warner 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

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,
the turnover rate for our 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 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.

43



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| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | Reduced marketing expenditures may negatively
    impact our ability to attract new members

In 2003 and 2002, we significantly reduced our
marketing expenditures in an effort to conserve available cash
and to target higher-value members. These reduced expenditures
may hamper our ability to attract new members and grow our
business.



| |                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------
| | 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.                



| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to implement our marketing
    agreement with McDonalds in Brazil in a timely and
    effective manner, our membership may not grow

Our marketing efforts and our future membership
growth are heavily dependent on the successful implementation of
our McDonalds marketing agreement in Brazil. If we are not
able to implement this agreement in a timely or effective
manner, we may not be able to increase our future membership and
revenues. To date, this agreement has been subject to a number
of delays and we have paid McDonalds a total of $2.1
million. This agreement has been in effect since January 2003,
and we do not expect to complete implementation until the first
quarter of 2005. We recently restructured our agreement with
McDonalds in a manner which we hope will facilitate the
implementation of the project in a more timely and effective
manner. If we are unable to effectively implement this
agreement, we may not recover the value of our current and
projected future investment in the project.



| |                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Intense competition in Latin America,
    including competition from providers of free and low-cost
    Internet services, 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
Telefónica, 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,

44



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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.



| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | If consumers do not respond favorably to our
    web-based services, our business will suffer

In 2003, we began to introduce web-based
services, which differ from our country services in that they do
not require client software and are generally lower priced.
Price, member retention and profitability targets may not prove
feasible. External factors, such as the development of
competitive alternatives and competitor responses, may impact
consumer acceptance of these new services. Our business is
heavily dependent on consumer acceptance of these new services.



| |                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 us 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 authorizations and changing
significant corporate governance provisions in our restated
certificate of incorporation and restated by-laws.



| |                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our potential issuance of stock upon the
    conversion of our convertible debt, our payment of interest
    under the notes in additional stock, and our expected redemption
    of preferred 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 stock, which could place
further downward pressure on the price of our stock.

Additionally, under the terms of our revised
charter, on August 7, 2005, we must redeem approximately
59.4% of the then outstanding series B and C preferred stock
issued to America Online and the Cisneros Group. The exact
percentage to be redeemed is subject to adjustment based on the
number of shares we will issue in payment of interest on our
senior convertible notes through August 7, 2005, which is
in turn dependent on the price of our class A common stock. The
series B and series C preferred stock may be redeemed, at our
option, in cash, by delivery of shares of class A common stock
or by any combination of cash and shares of class A common
stock. However, due to our limited cash position, we expect to
redeem these shares of preferred stock through the issuance of
shares of class A common stock. This will result in significant
additional dilution to our class A stockholders.



| |                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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, 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

45



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price controls. Most of these factors were
significant factors impacting our business during the fiscal
years 2003, 2002 and 2001 and have occurred at various times
over the last two decades in the Latin American markets in which
we operate, including Brazil, Mexico and Argentina. We have no
control over these matters. Social, political and economic
conditions may inhibit online services and Internet use, create
uncertainty in our operating climate and cause advertisers to
reduce their advertising spending, all of which may adversely
impact our business.




| |                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In the past, 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 depreciate 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 depreciation in the past. Our revenues will decline in value
if the local currencies in which we are paid depreciate relative
to the U.S. dollar, which would adversely affect our business.



| |                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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
(i) America Online continues to own at least 50,929,167
shares of B stock, or 50% of the number of shares of series B
preferred stock that we originally issued to it; and
(ii) the Cisneros Group continues to own at least
50,929,167 shares of C stock, or 50% of the number of shares of
series C preferred stock that we originally issued to it and two
of our directors and one of our executive officers. 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 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

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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 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. 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.



| |                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | We may not be able to retain or recruit
    qualified personnel, which could impact the management and
    development of our business

Our success depends in part upon both the
continued services of our executive officers and other key
employees and our ability to attract and retain highly skilled
and qualified personnel. The loss of the services of one or more
of our key personnel could adversely impact our business. Since
competition for talented people is intense, we may have
difficulty in retaining and attracting skilled and qualified
personnel.



| |                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 ME and Windows XP, our
interactive services will be less appealing to consumers and our

47



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revenues may decline. We expect high-speed
Internet and online service access to 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 only offer high-speed Internet access services in
Brazil.




| |                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 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.



| |                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 by means
other than credit cards.



| |                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In the past, we have had difficulty complying
    with certain Nasdaq listing requirements. 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 possible
    lower stock price

In the past, we have had difficulty complying
with various 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 executed
    and these providers could modify the terms of these arrangements
    at any time

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

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telecommunications regulations could encourage
these providers 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 experienced substantial volatility,
including prolonged periods of devaluation, in the past. If the
currencies of the countries in which we operate depreciate and
we do not or are unable 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 potential
substantial 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
substantial expenses in each of our principal currencies, our
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 as a vehicle 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.

As of December 31, 2003, we had total assets
in Argentina totaling approximately $4.4 million, of which
approximately $4.0 million is related to a local-currency
denominated VAT receivable from the Argentine government. This
VAT receivable is classified under Other Assets in the
Consolidated Balance Sheet. This VAT receivable is not subject
to expiration.

To date, our consolidated results of operations
have not been materially impacted by inflation. Inflation was
approximately 9% in Brazil during calendar 2003 and is expected
to reach a similar level in calendar 2004. Inflation in
Argentina was approximately 4.0% during calendar 2003, and is
expected increase slightly to 7% in calendar 2004 as the
Argentine economy has resumed growth after devaluing its
currency in 2001. Inflation in Mexico was 4% in 2003 and is
forecasted to reach a similar level in 2004.

We are exposed to market risk as it relates to
changes in the market value of our investments. As of
December 31, 2003, we did not have any 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) Audited consolidated
financial statements of Item 15 of this report, which
financial statements are incorporated herein by reference in
response to this Item 8.






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

None.






|         |                         
|-------- | ------------------------
|Item 9A. | Controls and Procedures.

(a) Evaluation of Disclosure Controls and
Procedures

As of the end of the period covered by this
Annual Report on Form 10-K, an evaluation was performed
under the supervision and with the participation of our
management, including the Chief Executive Officer
(CEO) and Chief Financial Officer (CFO),
of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)). Based on that evaluation, the
CEO and CFO have concluded that our disclosure controls and
procedures were adequate and effective to ensure that material
information relating to us, including our consolidated
subsidiary, was made known to them by others within those
entities, particularly during the period in which this Annual
Report on Form 10-K was being prepared.

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(b) Changes in Internal
Controls

No change in our internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) occurred during the fourth quarter of our last fiscal
year, that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.




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:



| |   |                    
| | - | -------------------
| |  | J. Michael Kelly;  
|
| |  | David Gang;        
|
| |  | Joseph A. Ripp; and
|
| |  | Gerald Sokol, Jr.  

The Cisneros Group has elected:



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

Our three remaining directors are:



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

We currently have two vacancies on our Board of
Directors, one of 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. On December 31, 2003,
Michael J. Lynton, who was elected by America Online, resigned
from our Board of Directors. We do not expect America Online to
fill this vacancy at this time.

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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 21, 2004.

|                              |  |     |    |          |  |                                                                
|----------------------------- |  | --- | -- | -------- |  | ---------------------------------------------------------------
|Name                          |  | Age |    | Position
|                              |  |     |    |         
|Charles M. Herington          |  |     | 44 |          |  | President and Chief Executive Officer                          
|Osvaldo Baños                 |  |     | 48 |          |  | Executive Vice President and Chief Financial
    Officer       
|Milton P. Brice               |  |     | 44 |          |  | Treasurer and Controller                                       
|David A. Bruscino             |  |     | 41 |          |  | Vice President, General Counsel and Secretary                  
|Eduardo A. Escalante Castillo |  |     | 45 |          |  | President, AOL Mexico                                          
|Milton R. Camargo             |  |     | 46 |          |  | President, AOL Brasil                                          
|Travis Good                   |  |     | 43 |          |  | Vice President, Technology and Operations                      
|Eduardo Hauser                |  |     | 35 |          |  | Executive Vice President, AOL Services and
    Business Affairs
|Steven I. Bandel              |  |     | 50 |          |  | Director                                                       
|Gustavo A. Cisneros           |  |     | 58 |          |  | Director                                                       
|Ricardo J. Cisneros           |  |     | 56 |          |  | Director                                                       
|David A. Gang                 |  |     | 46 |          |  | Director                                                       
|Vernon E. Jordan, Jr.         |  |     | 68 |          |  | Director                                                       
|J. Michael Kelly              |  |     | 47 |          |  | Director                                                       
|William H. Luers              |  |     | 74 |          |  | Director                                                       
|M. Brian Mulroney             |  |     | 65 |          |  | Director                                                       
|Robert S. OHara, Jr.         |  |     | 64 |          |  | Director                                                       
|Cristina Pieretti             |  |     | 52 |          |  | Director                                                       
|Joseph A. Ripp                |  |     | 52 |          |  | Director                                                       
|Gerald Sokol, Jr.             |  |     | 41 |          |  | 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 América 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 Procter & Gamble.
Mr. Herington is also a director of Adolph Coors Company
and its principal subsidiary, Coors Brewing Company, and of NII
Holdings, Inc.

Osvaldo Baños.Mr. Baños is our executive vice president and chief
financial officer since September 2002. From June 1999 to
September 2002, Mr. Baños was a partner and executive
office 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

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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. 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 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 31, 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 AOL/
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.

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 executive vice
president of AOL services and business affairs, a position he
has held since July 2003. From January 2001 to June 2003,
Mr. Hauser served as our vice president of AOL services.
From January 2002 to July 2003, Mr. Hauser served as our
vice president of business affairs. 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.

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 Pueblo
Xtra International, Inc., a company within the Cisneros Group.

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
Univision Communications Inc., Barrick Gold Corp. and Pueblo
International LLC.

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Mr. Cisneros is a charter member of the
United Nations Information and Communication Technologies
(ICT) Task Force. He holds positions on the World Business
Council and Board of Governors for the Media, Communications and
Entertainment Industries at the World Economic Forum, the
International Advisory Council of Columbia University, the
University Council at Rockefeller University and the Board of
Overseers at Babson College. Mr. Cisneros also serves on the
Advisory Committee for the David Rockefeller Center for Latin
American Studies and the Center for International
Developments International Advisory Board at Harvard
University, as well as the Board of Governors of the Joseph H.
Lauder Institute of Management and International Studies of the
Wharton School at the University of Pennsylvania.
Mr. Cisneros also serves on the Board of Advisors for the
International Advisory Board of the Council on Foreign Relations
in New York, the Chairmans International Advisory Council
of the Americas Society, the Board of Overseers of the
International Center for Economic Growth, the Chairmans
Council of the Museum of Modern Art, the Board of Trustees and
International Museum Council of The Museum of Television &
Radio, and the Board of Directors for the International Council
of the National Academy of Television Arts and Sciences.
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. Mr. Cisneros is the brother of Gustavo
A. Cisneros.

David A. Gang.Mr. Gang has been a member of our
board of directors since July 31, 2003 and was appointed to
the board by America Online. Mr. Gang has served as
executive vice president of AOL Products since April 2003.
Before that, he served as executive vice president of product
marketing for America Online from June 2002 to April 2003. From
June 1999 until June 2002, Mr. Gang served as senior vice
president of strategic development for America Online and from
July 1995 to June 1999 he served as vice president of product
marketing of America Online. Before joining America Online,
Mr. Gang was vice president of marketing at Aldus Consumer
Division from 1992 to 1994, where he created and developed Aldus
home publisher and Aldus art explorer. From 1990 to 1992, he was
president of After Hours Software.

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., Dow Jones & Company, Inc., J.C. Penney Company,
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 Time
Warner. 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.

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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 Wickes Inc.,
and several incorporated mutual funds managed by Deutsche
Scudder Investments, Inc.

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 Pueblo
Xtra International, Inc., 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 a member of the finance committees of A Better Chance
and the Advertising Educational Foundation. He also serves as
chair of the finance committee of the Advertising Educational
Foundation. In addition, Mr. Ripp is a director, chairman
of the finance committee, and a member of the executive
committee 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.

Controlled Company Status

We are exempt from certain independent director
requirements set forth in Rule 4350(c) of The Nasdaq Stock
Market Inc. because we are a Controlled Company
within the meaning of Rule 4350(c)(5). We have received a
letter from Nasdaq confirming our analysis that we are a
Controlled Company. We have concluded that we are a
Controlled Company because America Online and the
Cisneros Group currently own in excess of 50% of the voting
power of our securities and each of

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America Online and the Cisneros Group have on
file a Schedule 13D acknowledging that it may be considered
to be acting as a member of a group with the other.


Audit Committee

We have an Audit Committee established by our
Board of Directors for the purpose of overseeing our accounting
and financial reporting processes and our audits of our
financial statements. This committee currently has three
members, comprised of our Chairman, Robert S. OHara, Jr.,
William H. Luers and Vernon E. Jordan, Jr.

The Board of Directors has determined that we do
not have an audit committee financial expert (as that term is
defined under Item 401(h) of Regulation S-K) serving
on our audit committee. As disclosed above, we have few
independent directors and are deemed a Controlled
Company under Nasdaq regulations. None of our independent
directors meets the criteria of an audit committee financial
expert.

Code of Ethics

We have adopted a code of ethics that applies to
all directors and employees, including our principal executive
officer, principal financial officer and principal accounting
officer. We have made our code of ethics available on our
website at www.aola.com/investors. Disclosure regarding any
amendments to, or waivers from, provisions of our code of ethics
that apply to our directors, principal executive and financial
officers will be included in a Current Report on Form 8-K
within five business days following the date of the amendment or
waiver, unless website posting of such amendments or waivers is
then permitted by the rules of The Nasdaq Stock Market, Inc.

Section 16(a) Beneficial Ownership
Reporting Compliance

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 2003, our officers, directors and
greater than 10% beneficial stockholders complied with all
Section 16(a) filing requirements on time.






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

Compensation of Directors

The directors appointed by America Online and the
Cisneros Group do not receive cash compensation for services
rendered in their capacity as directors, except that effective
as of January 1, 2004, Robert S. OHara, Jr. received
compensation as set forth below. 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 11, 2004, none of these options granted under the
plan had been exercised. Under America Onlines conflicts
of interests standards, David A. Gang, J. Michael Kelly, Joseph
A. Ripp and Gerald Sokol, Jr., each a member of our board as
well as an employee of America Online, must transfer the
economic benefit of their options to America Online.

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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, 2003,
December 31, 2002 and December 31, 2001.

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, 2003, and who were employed by us
on December 31, 2003. Also included is Mr. Carlos D.
Trostli, our former President and General Manager of AOL Brasil.
Mr. Trostli would have been among our most highly
compensated executive officers other than Mr. Herington,
our chief executive officer, but for the fact that he was not
serving as an executive officer on December 31, 2003.
Mr. Trostlis employment with us ended in March 2003.

|                                  |  |                     |      |              |  |         |         |              |  |         |         |  |  |   |         |  |  |  |         | 
|--------------------------------- |  | ------------------- | ---- | ------------ |  | ------- | ------- | ------------ |  | ------- | ------- |  |  | - | ------- |  |  |  | ------- | 
|                                  |  |                     |      | Long Term   
|                                  |  | Annual Compensation |      | Compensation
|                                  |  |                     |      |             
|                                  |  |                     |      | Securities  
|                                  |  |                     |      | Underlying  
|                                  |  |                     |      | Other Annual |  | Options
|Name and Principal Position       |  | Year                |      | Salary       |  | Bonus   |         | Compensation |  | Awarded
|                                  |  |                     |      |              |  |         |         |              |  |        
|Charles M. Herington(1)           |  |                     | 2003 |              |  | $       | 435,000 |              |  | $       | 372,605 |  |  | $ | 33,604  |  |  |  |        | 
|President and Chief               |  |                     | 2002 |              |  |         | 435,000 |              |  |         | 440,220 |  |  |   | 33,904  |  |  |  | 150,000 | 
|Executive Officer                 |  |                     | 2001 |              |  |         | 410,166 |              |  |         | 150,000 |  |  |   | 33,946  |  |  |  | 750,000 | 
|                                 
|Osvaldo Baños (2)                 |  |                     | 2003 |              |  | $       | 300,154 |              |  | $       | 128,485 |  |  |   |        |  |  |  |        | 
|Executive Vice President          |  |                     | 2002 |              |  |         | 140,487 |              |  |         | 231,845 |  |  |   |        |  |  |  | 250,000 | 
|and Chief Financial Officer       |  |                     | 2001 |              |  |         |        |              |  |         |        |  |  |   |        |  |  |  |        | 
|                                 
|Eduardo A Escalante Castillo(3)   |  |                     | 2003 |              |  | $       | 314,960 |              |  | $       | 138,306 |  |  | $ | 65,619  |  |  |  |        | 
|President and General             |  |                     | 2002 |              |  |         | 316,315 |              |  |         | 179,860 |  |  |   | 47,200  |  |  |  | 80,000  | 
|Manager, AOL Mexico               |  |                     | 2001 |              |  |         | 295,439 |              |  |         | 60,410  |  |  |   | 46,724  |  |  |  | 150,000 | 
|                                 
|Eduardo Hauser                    |  |                     | 2003 |              |  | $       | 209,541 |              |  | $       | 81,383  |  |  | $ |        |  |  |  |        | 
|Executive Vice President          |  |                     | 2002 |              |  |         | 204,390 |              |  |         | 98,033  |  |  |   |        |  |  |  | 44,600  | 
|AOL Services and Business Affairs |  |                     | 2001 |              |  |         | 179,862 |              |  |         | 29,832  |  |  |   |        |  |  |  | 90,000  | 
|                                 
|David A. Bruscino(4)              |  |                     | 2003 |              |  | $       | 187,658 |              |  | $       | 64,443  |  |  | $ | 18,622  |  |  |  |        | 
|Vice President and                |  |                     | 2002 |              |  |         | 179,029 |              |  |         | 66,904  |  |  |   | 7,137   |  |  |  | 44,600  | 
|General Counsel                   |  |                     | 2001 |              |  |         | 163,832 |              |  |         | 43,492  |  |  |   | 26,744  |  |  |  | 90,000  | 
|                                 
|Carlos D. Trostli(5)              |  |                     | 2003 |              |  | $       | 158,055 |              |  | $       | 150,189 |  |  | $ | 33,608  |  |  |  |        | 
|former President and              |  |                     | 2002 |              |  |         | 275,973 |              |  |         | 119,239 |  |  |   | 137,889 |  |  |  | 66,700  | 
|General Manager, AOL Brazil       |  |                     | 2001 |              |  |         | 166,673 |              |  |         | 110,646 |  |  |   | 52,972  |  |  |  | 375,000 | 






|    |                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Mr. Heringtons other annual
    compensation consists of automobile allowance ($30,000 annually)
    and payment of club membership fees (approximately $4,000
    annually).                                                                                                                                                  
|(2) | 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.                                                                                
|(3) | Mr. Escalantes other annual
    compensation consists of use of automobile (approximately
    $12,200 in 2003 and $20,000 annually in 2002 and 2001),
    childrens education allowance (approximately $51,000 in
    2003 and $24,000 in 2002 and 2001).                                                                     
|(4) | Mr. Bruscinos other annual
    compensation in 2001 consists of expenses related to his
    relocation to the Fort Lauderdale, Florida area when he joined
    AOLA. Mr. Bruscinos other annual compensation in 2002
    and 2003 consists of partial reimbursement of expenses related
    to overseas work.                 
|(5) | Mr. Trostlis employment with us began
    on May 7, 2001 and ended March 28, 2003. His other
    annual compensation includes use of automobile ($30,000
    annually), childrens education allowance (2003: $3,209;
    2002: $17,827; 2001: $9,537) and personal security (2003:
    $18,156; 2002: $87,056; 2001: $11,947).

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Option Grants in 2003 to Named Executive
Officers

We did not grant any employee options to purchase
shares of class A common stock during the year ended
December 31, 2003 to the named executive officers listed in
the summary compensation table.

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, 2003. None of the named executive officers
held any stock appreciation rights or exercised any stock
options or stock appreciation rights during 2003. 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 on December 31, 2003. The closing price of
our class A common stock on the Nasdaq SmallCap Market on that
date was $1.42.

|                               |  |                        |           |                      |  |             |         |               |  |   |        |  |  |   |         | 
|------------------------------ |  | ---------------------- | --------- | -------------------- |  | ----------- | ------- | ------------- |  | - | ------ |  |  | - | ------- | 
|                               |  |                        |           |                     
|                               |  | Number of Securities   |           | Value of Unexercised
|                               |  | Underlying Unexercised |           | In-The-Money Shares 
|                               |  | Options at Year End    |           | at Year End(1)      
|                               |  |                        |           |                     
|Name                           |  | Exercisable            |           | Unexercisable        |  | Exercisable |         | Unexercisable
|                               |  |                        |           |                      |  |             |         |              
|Herington, Charles M.          |  |                        | 1,750,001 |                      |  |             | 449,000 |               |  |   |       |  |  |   |        | 
|Baños, Osvaldo                 |  |                        | 62,500    |                      |  |             | 187,500 |               |  | $ | 72,500 |  |  | $ | 217,500 | 
|Escalante Castillo, Eduardo A. |  |                        | 376,250   |                      |  |             | 228,750 |               |  |   |       |  |  |   |        | 
|Hauser, Eduardo A.             |  |                        | 239,900   |                      |  |             | 139,700 |               |  |   |       |  |  |   |        | 
|Bruscino, David A.             |  |                        | 206,150   |                      |  |             | 128,450 |               |  |   |       |  |  |   |        | 
|Trostli, Carlos D.             |  |                        |          |                      |  |             |        |               |  |   |       |  |  |   |        | 






|    |                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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, 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 2003 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 Time Warner
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.

57



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Osvaldo Baños.Mr. Baños serves as our
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 in
2002. 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 initial option grant of 250,000 shares.

David A. Bruscino.Mr. Bruscino is our vice
president and general counsel. Mr. Bruscinos annual
salary from May 2000 to February 2001 was $150,000. From March
2001 to February 2002, Mr. Bruscinos annual salary
was $166,837. From March 2002 to the present date,
Mr. Bruscinos annual salary is $183,521.
Mr. Bruscino is eligible to receive an incentive bonus of
up to 35% of his base salary based on his performance and on the
achievement of specified performance objectives.
Mr. Bruscino is also eligible to receive options to
purchase shares of our class A common stock.

Eduardo A. Escalante Castillo.Mr. Escalante is president and
general manager 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 50% 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 executive vice president of AOL Services
and Business Affairs. 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
70% of his base salary, based on specified performance
objectives related to advertising revenue. He is also eligible
to receive options to purchase our class A common stock.

Carlos D. Trostli.In connection with the termination of Mr. Trostlis
employment with our Brazilian subsidiary in May 2003,
Mr. Trostli received a cash payment in the amount of
$158,055. In addition, we agreed to continue his health and life
insurance coverage for a period of one year following the
termination, and he received a bonus for 2003 in the amount of
$150,189.






|         |                                                                                                       
|-------- | ------------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain 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 1, 2004 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 1, 2004 are considered to be
outstanding, but shares which may be similarly acquired by other
holders are not considered to be outstanding.

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

58



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | 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 240,000
    shares of class A common stock issuable upon exercise of options
    held by employees of America Online, who are also directors of
    AOLA. Although such employees are the record holders of their
    respective options, America Online holds or shares disposition
    power with respect to all of the shares of the class A common
    stock underlying the options.                                                                                                                        
|
| |  | Banco Itaús shares are held through an
    indirect, wholly-owned subsidiary, Garnet Corporation.                                                                                                                                                                                                                                                                                                                                                                                                                                              

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The address for America Online is 22000 AOL Way,
Dulles, Virginia 20166. The address for Time Warner is One Time
Warner Center, 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 and Garnet
Corporation is Rua Boa Vista 176, São Paulo, Brazil.

|                                                                                    |  |                                |             |          |  |  |       |  
|----------------------------------------------------------------------------------- |  | ------------------------------ | ----------- | -------- |  |  | ----- | -
|                                                                                    |  |                               
|                                                                                    |  | Shares of Class A Common Stock
|                                                                                    |  | Beneficially Owned            
|                                                                                    |  |                               
|Beneficial Owner                                                                    |  | Number                         |             | Percent 
|                                                                                    |  |                                |             |         
|Executive Officers and Directors                                                    |  |                                |             |          |  |  |       |  
|Charles M. Herington                                                                |  |                                | 2,010,000   | (1)      |  |  | 1.46  | %
|Osvaldo Baños                                                                       |  |                                | 0           |          |  |  | 0.0   | %
|Carlos D. Trostli                                                                   |  |                                | 0           |          |  |  | 0.0   | %
|Eduardo A. Escalante Castillo                                                       |  |                                | 527,500     | (2)      |  |  | 0.39  | %
|Eduardo Hauser                                                                      |  |                                | 817,576     | (3)      |  |  | 0.60  | %
|David A. Bruscino                                                                   |  |                                | 290,800     | (4)      |  |  | 0.21  | %
|Steven I. Bandel                                                                    |  |                                | 640,593     | (5)      |  |  | 0.47  | %
|Gustavo A. Cisneros                                                                 |  |                                | 57,730,886  | (6)(16)  |  |  | 32.99 | %
|Ricardo J. Cisneros                                                                 |  |                                | 57,803,108  | (7)(16)  |  |  | 33.02 | %
|David A. Gang                                                                       |  |                                | 60,000      | (8)      |  |  | 0.04  | %
|J. Michael Kelly                                                                    |  |                                | 60,000      | (8)      |  |  | 0.04  | %
|Robert S. OHara, Jr.                                                               |  |                                | 68,000      | (9)      |  |  | 0.05  | %
|Cristina Pieretti                                                                   |  |                                | 457,748     | (10)     |  |  | 0.34  | %
|Joseph A. Ripp                                                                      |  |                                | 60,000      | (8)      |  |  | 0.04  | %
|Gerald Sokol, Jr.                                                                   |  |                                | 60,000      | (8)      |  |  | 0.04  | %
|Vernon E. Jordan, Jr.                                                               |  |                                | 60,000      | (11)     |  |  | 0.04  | %
|William H. Luers                                                                    |  |                                | 62,350      | (12)     |  |  | 0.05  | %
|M. Brian Mulroney                                                                   |  |                                | 60,000      | (11)     |  |  | 0.04  | %
|All current and former executive officers and
    directors as a group  21 persons |  |                                | 120,768,561 |          |  |  | 55.24 | %
|                                                                                   
|Five Percent Stockholders                                                           |  |                                |             |          |  |  |       |  
|America Online, Inc.                                                                |  |                                | 136,791,706 | (13)(16) |  |  | 59.00 | %
|Time Warner Inc.                                                                    |  |                                | 216,345,694 | (14)(16) |  |  | 69.48 | %
|Aspen Investments LLC                                                               |  |                                | 57,730,886  | (6)(16)  |  |  | 32.99 | %
|Atlantis Investments LLC                                                            |  |                                | 57,803,108  | (7)(16)  |  |  | 33.02 | %
|Banco Itaú S.A.                                                                     |  |                                | 35,937,840  | (15)(16) |  |  | 26.58 | %






| |     |                                                                                                                                                                                                            
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Consists of options to purchase 2,000,000 shares
    of class A common stock, which are exercisable within
    60 days of March 1, 2004 and 10,000 shares of class A
    common stock.                     
|
| | (2) | Consists of options to purchase 527,500 shares of
    class A common stock, which are exercisable within 60 days
    of March 1, 2004.                                                                     
|
| | (3) | Consists of options to purchase 334,800 shares of
    class A common stock, which are exercisable within 60 days
    of March 1, 2004 and 482,776 shares of class A common stock.                          
|
| | (4) | Consists of options to purchase 289,800 shares of
    class A common stock, which are exercisable within 60 days
    of March 1, 2004 and 1,000 shares of class A common
    stock.                        
|
| | (5) | 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.

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| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (6) | Consists of the following as of March 1,
    2004: (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 1, 2004, Gustavo A. Cisneros, either directly or
    through Aspen Investments LLC, beneficially owned a total of
    57,730,886 shares of class A common stock. 
|
| | (7) | Consists of the following as of March 1,
    2004: (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 1, 2004, Ricardo J. Cisneros, either directly or
    through Atlantis Investments LLC, beneficially owned a total of
    57,803,108 shares of class A common stock.
|
| | (8) | 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. Under America Onlines
    conflicts of interests standards David A. Gang, J. Michael
    Kelly, Joseph A. Ripp and Gerald Sokol, Jr., each a member of
    our board as well as an employee of America Online, must
    transfer the economic benefit of their options to America Online.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | (9) | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 397,248 shares of class
    A common stock held by Pallium Operating II, LLC, a holding
    company beneficially owned by Ms. Pieretti. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    
|(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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    
|(12) | 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 2,350 shares of class A
    common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    
|(13) | Consists of the following as of March 1,
    2004: (a) 40,169,780 shares of class A common stock,
    (b) 79,840,676 shares of series B preferred stock,
    (c) currently exercisable options to purchase 240,000
    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 1, 2004, America Online beneficially
    owned a total of 136,791,706 shares of class A common stock.
    Time Warner, the parent company of America Online, may be deemed
    jointly to beneficially own all these shares.
|    
|(14) | Consists of the following, as of March 1,
    2004: (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 240,000 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) 44,150,105 shares of series B preferred stock issuable
    upon conversion of $160.0 million                                                                                                                                                                                                                                                                                                                                                                                                                             

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|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | in principal amount in senior convertible notes
    held by Time Warner, and (f) 35,403,883 shares of series B
    preferred stock held by Time Warner. 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 1, 2004, Time Warner beneficially owned
    a total of 216,345,694 shares of class A common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|(15) | Consists of class A common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    
|(16) | 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, Time Warner and the Cisneros Group: stockholders
    agreement, the voting agreement, and the America Online-ODC
    registration rights agreement, America Online and Time Warner
    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 Time
    Warner, 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 Time Warner, (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, 2003 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        |  |                         | 8,539,491  |                     |  | $                            | 5.81 |  |  |  | 9,651,934  | 
|Equity compensation plans to approved by
    stockholders |  |                         | 1,893,695  |                     |  | $                            | 3.07 |  |  |  | 2,656,804  | 
|                                                          |  |                         |            |                     |  |                              |      |  |  |  |            | 
|Total                                                     |  |                         | 10,433,186 |                     |  | $                            | 5.31 |  |  |  | 12,308,738 | 
|                                                          |  |                         |            |                     |  |                              |      |  |  |  |            | 






|    |                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Consists of the 2000 Stock Plan. Although our
    stockholders initially approved the Plan, in March 2001, we
    increased the total number of shares available for issuance
    under the Plan by 4,600,000 shares. Stockholder approval was not
    sought although our Compensation Committee and our Board of
    Directors approved this increase.

See Note 4 
Stockholders Equity  Stock Option Plan to
our unaudited consolidated financial statements for a
description of features of our 2000 Stock Plan.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

Our Audit Committee reviews and approves in
advance all related-party transactions.

2002 Debt Financing

Note Purchase Agreement with Time Warner.In order to fund our operating and
cash requirements, on March 8, 2002, we entered into a note
purchase agreement with Time Warner, the parent of America

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Online, which is one of our principal
stockholders. Under the note purchase agreement, Time Warner
provided us with $160.0 million in 2002 in exchange for senior
convertible notes of AOLA due in March of 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 are redeemable by us at any
time, 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 closing price of the class A
common stock for the twenty trading dates ending o the third day
prior to the date of payment.


In the event Time Warner were to convert the
$160.0 million in senior convertible notes, an additional
44,150,105 shares of series B preferred stock would be issued to
Time Warner, increasing the economic ownership by America Online
and its affiliates in AOLA to 55.3% and their relative voting
strength to 66.9%, 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 240,000 shares
of class A common stock issued to certain of our current
directors. It is our intention to continue to pay the interest
on the senior convertible notes through the issuance of
additional shares.

Preferred Stock Conversion Agreement with
America Online and the Cisneros Group

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 C preferred stock to 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.

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 Time Warner as party to the stockholders agreement
for limited purposes and to require any subsidiaries of Time
Warner 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 registration rights
agreement by adding Time Warner as a party, requiring
subsidiaries of Time Warner 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.

63



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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, 2003, 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 the terms of the services agreement are at least as
favorable as we could have obtained from an unaffiliated third
party.

For the 2003 fiscal year, we had incurred
expenses totaling approximately $11.8 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. As of December 31, 2003, America
Online had billed us approximately $3.8 million over and above
amounts we have recorded in our consolidated financial
statements. The difference relates to a portion of items under
dispute, primarily for support services provided by America
Online. This dispute was settled in February 2004 in a manner
which is consistent with our historical accounting treatment and
which did not have any cash impact on our financial condition.
We received a credit for these invoices on March 18, 2004.

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 2003, we incurred expenses of $2.7 million 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. We also received from
America Online $14.5 million for fees collected by America
Online from subscribers to the AOL-branded service in Puerto
Rico, which we recorded as subscription revenue.

Agreement for Consulting Services with America
Online Relating to U.S. Latino Content Area

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

64



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##### Table of Contents



received $750,000 as consideration for these
programming services. This agreement expired in February 2004.
However, we are in discussions with America Online for a new
agreement under which America Online would pay us $400,000 per
year and provide us at no charge with certain product
development services for our Spanish-language client software.
There can be no assurance that we will be able to reach
agreement with America Online regarding our potential provision
of these services.


Advertising Arrangements with America
Online

We have an arrangement with America Online under
which we pay them a commission as a finders fee of 15% of
advertising revenues received from global transactions in which
part of the advertising is on our AOLA country services and/or
web-based interactive services. The amount of these payments
during fiscal 2003 was approximately $137,000. Based on our
managements experience negotiating similar arrangements,
we believe that the terms of this arrangement are at least as
favorable as we could have obtained from an unaffiliated third
party.

Advertising Agreements with Banco
Itaú

We entered into a series of advertising
agreements with Banco Itaú under which Banco Itaú
advertised on our AOLA country service in Brazil during 2003.
The amount of payments under the agreements received by us from
Banco Itaú during fiscal 2003 was approximately $647,000.
We do not currently have any commitment by Banco Itaú to
advertise on our country service or web-based services in Brazil
in 2004.

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 2003 was $1.3
million.

Strategic Alliance with Banco
Itaú

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

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

During fiscal 2003, we purchased an aggregate of
approximately $986,000 in advertising on various Turner media
properties. Services received from Turner properties during 2003
were applied against a prepayment established in 2002. As of
December 31, 2003, approximately $463,000 remains available
under this prepayment remains available for future use.

Relationships with Officers of Time Warner and
America Online

Three members of our board appointed by America
Online are also executive officers of America Online.



| |   |                                                                                           
| | - | ------------------------------------------------------------------------------------------
| |  | David A. Gang is executive vice president of AOL
    Products;                            
|
| |  | J. Michael Kelly is the chairman and chief
    executive officer of 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.

65



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| |   |                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.

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.

Chat and Online Matchmaking Agreement with El
Sitio Management S.A.

On June 6, 2003, we entered into an
agreement with El Sitio Management S.A. (Claxson), a
company in which the Cisneros Group holds an interest. Under
this agreement, Claxson provided us with chat technology for use
on our web-based services and we agreed to jointly develop an
online matchmaking service. We paid Claxson approximately
$17,000 in 2003 and expect to pay them an additional $55,000 in
2004 under this agreement.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services



| |                                                                   
| | ------------------------------------------------------------------
| | 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 2004:



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

Our Audit Committee of our Board of Directors has
approved expenditures for these non-audit services.



| |                                      
| | -------------------------------------
| | Fees Paid to Independent
    Auditors

The following table presents fees for
professional audit services rendered by Ernst & Young LLP
for the audit of our annual financial statements for the years
ended December 31, 2003, and December 31, 2002, and
fees billed for other services rendered by Ernst & Young LLP
during those periods:

|                       |       |      |         |         |  |   |         |         | 
|---------------------- | ----- | ---- | ------- | ------- |  | - | ------- | ------- | 
|                       |       | 2003 |         | 2002   
|                       |       |      |         |        
|Audit fees:(1)         |       | $    | 775,620 |         |  | $ | 677,093 |        
|Audit related fees:(2) |       |      | 7,633   |         |  |   | 27,435  |        
|Tax fees:(3)           |       |      | 51,916  |         |  |   | 115,822 |        
|All other fees:(4)     |       |      |        |         |  |   | 28,470  |        
|                       |       |      |         |         |  |   |         |        
|                       | Total |      | $       | 835,169 |  |   | $       | 848,820 | 
|                       |       |      |         |         |  |   |         |        






|    |                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Audit fees include audit work performed in the
    preparation of financial statements, as well as work that
    generally only the independent auditor can reasonably be
    expected to provide, including comfort

66



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##### Table of Contents



|    |                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------
|    | letters, statutory audits, and attest services
    and consultation regarding financial accounting and/or reporting
    standards.
|(2) | Audit-Related fees are for other accounting
    consultations and assistance.                                                     
|(3) | Tax fees include tax planning and advisory
    services.                                                                          
|(4) | Other fees consist of license fees for income tax
    software.                                                                   



| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | Policy on Audit Committee Pre-Approval of
    Audit and Permissible Non-audit Services of Independent
    Auditors

Consistent with SEC policies regarding auditor
independence, the Audit Committee has responsibility for
appointing, setting compensation and overseeing the work of the
independent auditor. In recognition of this responsibility, our
Audit Committee charter requires the pre-approval of all audit
and permissible non-audit services provided by the independent
auditor.

Prior to engagement of the independent auditor
for the next years audit, management will submit an
estimate of services expected to be rendered during that year
for each of four categories of services described in the table
above to the Audit Committee for approval.

Prior to engagement, the Audit Committee
pre-approves these services by category of service. The fees are
budgeted and the Audit Committee requires the independent
auditor and management to report actual fees versus the budget
periodically throughout the year by category of service. During
the year, circumstances may arise when it may become necessary
to engage the independent auditor for additional services not
contemplated in the original pre-approval. In those instances,
the Audit Committee requires specific pre-approval before
engaging the independent auditor.

The Audit Committee has delegated pre-approval
authority to its chairperson, Robert S. OHara, Jr.
Mr. OHara reports, for informational purposes only,
any pre-approval decisions to the Audit Committee at its next
scheduled meeting.




PART IV






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

(a)(1) Audited consolidated financial
statements

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

|                                                                                    |  |  |     | 
|----------------------------------------------------------------------------------- |  |  | --- | 
|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 (Capital Deficiency) |  |  | F-4 | 
|                                                                                   
|Consolidated Statements of Cash Flows                                               |  |  | F-5 | 
|                                                                                   
|Notes to Consolidated Financial Statements                                          |  |  | F-6 | 

(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 audited consolidated financial statements and notes thereto.

67



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##### Table of Contents



(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 Online Latin America, Inc. class
A common stock as of March 11, 2004, 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 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).
|       
|        | 3.1(b)@ |                        |  | 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 September 23, 2003 (included as Exhibit 3.1 to the
    companys Quarterly Report on Form 10-Q for the
    quarter ended September 30, 2003 (No. 000-31181) and
    incorporated herein by reference).                                                                                                                                
|       
|        | 3.1(c)* |                        |  | 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 January 28, 2004.                                                                                                                                                                                                                                                                                                                     
|       
|        | 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).                                                                                                                                 

68



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|        |         |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------- | ------- | ---------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |                       
|Number  |         | Description of Exhibit
|        |         |                       
|       
|        | 10.6@   |                        |  | Letter dated July 22, 2003 from AOL Brasil
    Ltda. to Banco Itaú, S.A. (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).                                                                                                                                                                                                                                                                                                                                                                                                                                              
|       
|        | 10.7@+  |                        |  | 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).                                                                                                                                                                                                                                                                                                                                                                               
|       
|        | 10.8@   |                        |  | 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).                                                                                                                                                                                                                                                                                                                                                   
|       
|        | 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 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., 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
    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).

69



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|        |         |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- | ------- | ---------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |                       
|Number  |         | Description of Exhibit
|        |         |                       
|       
|        | 10.16@  |                        |  | Amendment, dated as of May 20, 2002, to the
    Voting Agreement, dated as of March 8, 2002, by and among
    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 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
    Time Warner Inc., America Online, Inc., Banco Itaú, S.A.,
    Banco Banerj, S.A., Banco Itaú, S.A.-Cayman Branch, and
    Itaú Bank Limited (included as Exhibit 16 to Amendment
    No. 6 to Schedule 13D of 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).
|       
|        | 10.18@  |                        |  | 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@# |                        |  | Private Instrument of Transaction and Release,
    entered into on April 30, 2003, by and between Carlos Dan
    Trostli, AOL Brasil Ltda. and America Online Latin America, Inc.
    (included as Exhibit 10.1 to the companys Quarterly
    Report on Form 10-Q for the quarter ended March 31,
    2003 (No. 000-31181) and incorporated herein by reference).                                                                                                                                                                                                                 
|       
|        | 10.22@+ |                        |  | 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).                                                                                                                                                                                                                                                       
|       
|        | 10.23@+ |                        |  | Business Cooperation Agreement, dated
    January 9, 2003, between McDonalds Comercio de
    Alimentos Ltda. and AOL Brasil Ltda. (included as
    Exhibit 10.24 to the companys Annual Report on
    Form 10-K/A for the year ended December 31, 2002
    (No. 000-31181) and incorporated herein by reference).                                                                                                                                                                                                                                                                
|       
|        | 10.24@# |                        |  | 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).                                                                                                                                                                                                                                                                               
|       
|        | 10.25@# |                        |  | 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).                                                                                                                                                                                                                                                                                                                                         
|       
|        | 10.26@# |                        |  | 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).                                                                                                                                                                                                                                                                                                                                        
|       
|        | 10.27@# |                        |  | 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).                                                                                                                                                                                                                                                                          
|       
|        | 10.28@+ |                        |  | AOL  Brasil Telecom Network Services
    Agreement Term Sheet, dated April 1, 2003, between AOL
    Brasil Ltda. and Brasil Telecom S.A. (included as Exhibit 10.2
    to the companys Quarterly Report on Form 10-Q for the
    quarter ended March 31, 2003 (No. 003-31181) and
    incorporated herein by reference).                                                                                                                                                                                                                                                         

70



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|        |         |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- | ------- | ---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |                       
|Number  |         | Description of Exhibit
|        |         |                       
|       
|        | 10.29@+ |                        |  | Agreement for the Assignment of Advertising Space
    and Other Covenants Between AOL and Brasil Telecom, dated
    April 1, 2003, between AOL Brasil Ltda. and Brasil Telecom
    S.A. (included as Exhibit 10.3 to the companys
    Quarterly Report on Form 10-Q for the quarter ended
    March 31, 2003 (No. 003-31181) and incorporated herein
    by reference).                                                                                                                                                                        
|       
|        | 10.30@+ |                        |  | Agreement for Supplying Telecommunications
    Infrastructure and Other Covenants, dated February 28,
    2003, entered into by Telecomunicações de São
    Paulo S.A. TELESP and TELEFONICA Empresas S.A. with AOL
    Brasil Ltda. (included as Exhibit 10.6 to the
    companys Quarterly Report on Form 10-Q for the
    quarter ended March 31, 2003 (No. 003-31181) and
    incorporated herein by reference).                                                                                                                          
|       
|        | 10.31@+ |                        |  | Agreement for the Assignment of Advertising
    Space, dated December 3, 2002, entered into by
    Telecomunicações de São Paulo S.A. TELESP
    with AOL Brasil Ltda. (included as Exhibit 10.7 to the
    companys Quarterly Report on Form 10-Q for the quarter
    ended March 31, 2003 (No. 003-31181) and incorporated
    herein by reference).                                                                                                                                                                                        
|       
|        | 10.32@  |                        |  | 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 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).
|       
|        | 10.33@  |                        |  | 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).                               
|       
|        | 10.34@  |                        |  | Note Purchase Agreement, dated as of
    March 8, 2002, by and between America Online Latin America,
    Inc. and 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).                                                                                                                                                                                                                                             
|       
|        | 10.35@  |                        |  | Amendment No. 1 to the Note Purchase
    Agreement, dated as of May 20, 2002, between Time Warner
    Inc. and America Online Latin America, Inc. (included as
    Exhibit 14 to Amendment No. 6 to Schedule 13D of
    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).                                                                    
|       
|        | 10.36@  |                        |  | 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).                                                                                                                                                                                                                                                                                                                                             
|       
|        | 10.37@+ |                        |  | 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).                                                                                                                                                                                                                                                                                  
|       
|        | 10.38@+ |                        |  | 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).                                                                                                                                                                                                                                                             
|       
|        | 10.39@+ |                        |  | 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).                                                                                                                                                                                                                                                
|       
|        | 10.40@+ |                        |  | 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).                                                                                                                                                                                                                                                 
|       
|        | 10.41@+ |                        |  | 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).                                                                                                                                                                                                                                                        

71



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|        |         |                        |  |                                                                                                                                                                                                                                                                                                                                                               
|------- | ------- | ---------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |                       
|Number  |         | Description of Exhibit
|        |         |                       
|       
|        | 10.42@+ |                        |  | 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).                                                                        
|       
|        | 10.43@+ |                        |  | 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).                                                               
|       
|        | 10.44@+ |                        |  | Amendment No. 7 to Master Agreement for
    Value Added Services (BRAZIL) by and between AOL Brasil
    LTDA., and EMPRESA BRASILEIRA DE TELECOMUNICACOES S.A. 
    EMBRATEL (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). 
|       
|        | 10.45@+ |                        |  | 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).                                                            
|       
|        | 10.46@+ |                        |  | Amendment No. 9 to Master Agreement for
    Value Added Services (BRAZIL) by and between AOL Brasil
    LTDA., and EMPRESA BRASILEIRA DE TELECOMUNICACOES S.A. 
    EMBRATEL (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). 
|       
|        | 10.47@+ |                        |  | Amendment No. 10 to Master Agreement for
    Value Added Services (BRAZIL) by and between AOL Brasil
    LTDA., and EMPRESA BRASILEIRA DE TELECOMUNICACOES S.A. 
    EMBRATEL (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).
|       
|        | 10.48@+ |                        |  | Amendment No. 11 to Master Agreement for
    Value Added Services (BRAZIL) by and between AOL Brasil
    LTDA., and EMPRESA BRASILEIRA DE TELECOMUNICACOES S.A. 
    EMBRATEL (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).
|       
|        | 10.49@+ |                        |  | Amendment No. 12 to Master Agreement for
    Value Added Services (BRAZIL), dated November 1, 2002, by
    and between AOL Brasil LTDA. and EMPRESA BRASILEIRA DE
    TELECOMUNICACOES S.A.  EMBRATEL.                                                                                                                                                       
|       
|        | 10.50@+ |                        |  | Amendment No. 13 to Agreement by and between
    Embratel and AOL Brasil Ltda., dated April 26, 2003
    (included as Exhibit 10.1 to the companys Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 2003 (No. 000-31181) and incorporated
    herein by reference).                                                                 
|       
|        | 10.51@+ |                        |  | Amendment No. 14 to Agreement by and between
    Embratel and AOL Brasil Ltda., dated September 3, 2003
    (included as Exhibit 10.2 to the companys Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 2003 (No. 000-31181) and incorporated
    herein by reference).                                                              
|       
|        | 10.52@+ |                        |  | Amendment No. 15 to Agreement by and between
    Embratel and AOL Brasil Ltda., dated September 25, 2003
    (included as Exhibit 10.3 to the companys Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 2003 (No. 000-31181) and incorporated
    herein by reference).                                                             
|       
|        | 10.53@+ |                        |  | Amendment No. 17 to Agreement by and between
    Embratel and AOL Brasil Ltda., dated November 4, 2003
    (included as Exhibit 10.7 to the companys Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 2003 (No. 000-31181) and incorporated
    herein by reference).                                                               
|       
|        | 10.54@+ |                        |  | 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).                                                                             
|       
|        | 10.55@+ |                        |  | 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).                                            

72



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|        |         |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | ------- | ---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |                       
|Number  |         | Description of Exhibit
|        |         |                       
|       
|        | 10.56@+ |                        |  | Agreement, dated December 13, 2002, by and
    between Avantel, S.A. and AOL Mexico, S. de R.L. de C.V.
    (included as Exhibit 10.54 of the companys Annual
    Report on Form 10-K/a for the year ended December 31,
    2002 (No. 000-31181) and incorporated herein by reference).                                                                                                                                                              
|       
|        | 10.57@+ |                        |  | Letter Agreement, dated December 13, 2002,
    between Avantel, S.A. and AOL Mexico, S. de R.L. de C.V.
    (included as Exhibit 10.55 of the companys Annual
    Report on Form 10-K/a for the year ended December 31,
    2002 (No. 000-31181) and incorporated herein by reference).                                                                                                                                                              
|       
|        | 10.58@+ |                        |  | Agreement by and between Avantel, S.A. and AOL
    Mexico S. de R.L. de C.V., dated as of July 1, 2003
    (included as Exhibit 10.5 to the companys Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 2003 (No. 000-31181) and incorporated
    herein by reference).                                                                                                                                                       
|       
|        | 10.59@+ |                        |  | Agreement for the Supplying of Commuted Fixed
    Telephone Service and Other Telecommunications Services and
    Internet/IP Services, entered into by AOL Do Brasil Ltda. and
    Telemar Norte Leste S.A., dated as of March 31, 2003, and
    related addenda (included as Exhibit 10.4 to the
    companys Quarterly Report on Form 10-Q for the
    quarter ended September 30, 2003 (No. 000-31181) and
    incorporated herein by reference).
|       
|        | 10.60@+ |                        |  | Agreement for Promotion of Traffic between AOL Do
    Brasil Ltda. and TNL. Acesso S.A., dated as of March 31,
    2003 (included as Exhibit 10.6 to the companys
    Quarterly Report on Form 10-Q for the quarter ended
    September 30, 2003 (No. 000-31181) and incorporated
    herein by reference).                                                                                                                                          
|       
|        | 10.61@+ |                        |  | Letter Agreement, dated June 11, 2003,
    between Teléfonos de Mexico, S.A. de C.V. and AOL Mexico S.
    de R.L. de C.V. (included as Exhibit 10.2 to the
    companys Quarterly Report on Form 10-Q for the
    quarter ended June 30, 2003 (No. 000-31181) and
    incorporated herein by reference).                                                                                                                                            
|       
|        | 10.62@  |                        |  | Agreement for Consulting Services, dated
    February 22, 2003, by and between America Online Latin
    America, Inc. and America Online, Inc. (included as
    Exhibit 10.58 to Amendment No. 1 of the companys
    Annual Report on Form 10-K/A for the year ended
    December 31, 2002 (No. No. 000-31181) and
    incorporated herein by reference).                                                                                            
|        | 21.1*   |                        |  | Subsidiaries of America Online Latin America, Inc.                                                                                                                                                                                                                                                                                                                                                                                                    
|       
|        | 23.1*   |                        |  | Consent of Ernst & Young LLP, Independent
    Certified Public Accountants.                                                                                                                                                                                                                                                                                                                                                                           
|       
|        | 31.1*   |                        |  | Certification of Chief Executive Officer pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                
|       
|        | 31.2*   |                        |  | Certification of Chief Financial Officer pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                
|       
|        | 32.1*   |                        |  | Certifications by the Chief Executive Officer and
    Chief Financial Officer pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                           






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



|  |                                        
|- | ---------------------------------------
|@ | 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.



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

(b) Reports on Form 8-K

On November 11, 2003, we furnished a Current
Report on Form 8-K disclosing in Item 12 the issuance
of a press release on November 11, 2003 setting forth our
financial results for the third quarter of 2003

73



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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 30, 2004

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 30, 2004 | 
|                                              
|/s/ OSVALDO BAÑOSOsvaldo Baños                 |  | Chief Financial Officer
    (principal financial officer)   |  |      | March 30, 2004 | 
|                                              
|/s/ MILTON P. BRICEMilton P. Brice             |  | Treasurer and Controller
    (principal accounting officer) |  |      | March 30, 2004 | 
|                                              
|/s/ STEVEN I. BANDELSteven I. Bandel           |  | Director                                                    |  |      | March 30, 2004 | 
|                                              
|/s/ GUSTAVO A. CISNEROSGustavo A. Cisneros     |  | Director                                                    |  |      | March 30, 2004 | 
|                                              
|/s/ RICARDO J. CISNEROSRicardo J. Cisneros     |  | Director                                                    |  |      | March 30, 2004 | 
|                                              
|/s/ DAVID A. GANGDavid A. Gang                 |  | Director                                                    |  |      | March 30, 2004 | 
|                                              
|/s/ J. MICHAEL KELLYJ. Michael Kelly           |  | Director                                                    |  |      | March 19, 2004 | 
|                                              
|/s/ ROBERT S. OHARA, JR.Robert S. OHara, Jr. |  | Director                                                    |  |      | March 30, 2004 | 
|                                              
|/s/ CRISTINA PIERETTICristina Pieretti         |  | Director                                                    |  |      | March 30, 2004 | 
|                                              
|/s/ JOSEPH A. RIPPJoseph A. Ripp               |  | Director                                                    |  |      | March 30, 2004 | 

74



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|                                               |  |          |  |      |                | 
|---------------------------------------------- |  | -------- |  | ---- | -------------- | 
|Signature                                      |  | Title    |  | Date
|                                               |  |          |  |     
|/s/ GERALD SOKOL, JR.Gerald Sokol, Jr.         |  | Director |  |      | March 30, 2004 | 
|                                              
|/s/ VERNON E. JORDAN, JR.Vernon E. Jordan, Jr. |  | Director |  |      | March 30, 2004 | 
|                                              
|/s/ WILLIAM H. LUERSWilliam H. Luers           |  | Director |  |      | March 22, 2004 | 
|                                              
|/s/ M. BRIAN MULRONEYM. Brian Mulroney         |  | Director |  |      | March 17, 2004 | 

75



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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, 2003 and 2002, and the related consolidated
statements of operations, changes in stockholders equity
(capital deficiency), and cash flows for each of the three years
in the period ended December 31, 2003. 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, 2003 and 2002, and the
consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31,
2003, in conformity with accounting principles generally
accepted in the United States.



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

Ft. Lauderdale, Florida

February 4, 2004, except for the second
paragraph of Note 3, as to which the


date is March 18, 2004, and Note 12, as
to which the date is March 24, 2004


F-1



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##### Table of Contents



AMERICA ONLINE LATIN
AMERICA, INC.

CONSOLIDATED BALANCE SHEETS

|                                                                                  |                                                                                                                                         |                                                                                                                              |          |              |          |   |          |         |         |  
|--------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | -------- | ------------ | -------- | - | -------- | ------- | ------- | -
|                                                                                  |                                                                                                                                         |                                                                                                                             
|                                                                                  |                                                                                                                                         | As of                                                                                                                       
|                                                                                  |                                                                                                                                         |                                                                                                                             
|                                                                                  |                                                                                                                                         | December 31,                                                                                                                 |          | December 31,
|                                                                                  |                                                                                                                                         | 2003                                                                                                                         |          | 2002        
|                                                                                  |                                                                                                                                         |                                                                                                                              |          |             
|                                                                                  |                                                                                                                                         |                                                                                                                             
|                                                                                  |                                                                                                                                         | (In thousands, except                                                                                                       
|                                                                                  |                                                                                                                                         | share amounts)                                                                                                              
|ASSETS                                                                           
|Current Assets:                                                                   |                                                                                                                                         |                                                                                                                              |          |              |          |   |          |        
|                                                                                  | Cash                                                                                                                                    |                                                                                                                              | $        | 32,633       |          |   | $        | 74,586  |        
|                                                                                  | Short-term money market investments                                                                                                     |                                                                                                                              |          | 268          |          |   |          | 915     |        
|                                                                                  |                                                                                                                                         |                                                                                                                              |          |              |          |   |          |        
|                                                                                  |                                                                                                                                         | Total cash and cash equivalents                                                                                              |          |              | 32,901   |   |          |         | 75,501  |  
|Trade accounts receivable, less allowances of
    $363 (December 31, 2002  $709) |                                                                                                                                         |                                                                                                                              | 2,267    |              |          |   | 3,567    |        
|Other receivables                                                                 |                                                                                                                                         |                                                                                                                              | 243      |              |          |   | 2,090    |        
|Prepaid expenses                                                                  |                                                                                                                                         |                                                                                                                              | 5,549    |              |          |   | 6,184    |        
|Other current assets                                                              |                                                                                                                                         |                                                                                                                              | 3,247    |              |          |   | 1,779    |        
|                                                                                  |                                                                                                                                         |                                                                                                                              |          |              |          |   |          |        
|                                                                                  |                                                                                                                                         | Total current assets                                                                                                         |          |              | 44,207   |   |          |         | 89,121  |  
|Property and equipment, net                                                       |                                                                                                                                         |                                                                                                                              | 4,771    |              |          |   | 6,983    |        
|Investments, including securities
    available-for-sale (at fair value)          |                                                                                                                                         |                                                                                                                              | 194      |              |          |   | 158      |        
|Product development and other intangible assets,
    net                          |                                                                                                                                         |                                                                                                                              | 50       |              |          |   | 285      |        
|VAT taxes recoverable                                                             |                                                                                                                                         |                                                                                                                              | 4,193    |              |          |   | 2,712    |        
|Other assets                                                                      |                                                                                                                                         |                                                                                                                              | 2,324    |              |          |   | 1,015    |        
|                                                                                  |                                                                                                                                         |                                                                                                                              |          |              |          |   |          |        
|                                                                                  |                                                                                                                                         | Total Assets                                                                                                                 |          | $            | 55,739   |   |          | $       | 100,274 |  
|                                                                                  |                                                                                                                                         |                                                                                                                              |          |              |          |   |          |        
|                                                                                 
|LIABILITIES AND STOCKHOLDERS EQUITY
    (CAPITAL DEFICIENCY)                    
|Current Liabilities:                                                              |                                                                                                                                         |                                                                                                                              |          |              |          |   |          |        
|                                                                                  | Trade accounts payable                                                                                                                  |                                                                                                                              | $        | 3,264        |          |   | $        | 8,746   |        
|                                                                                  | Payables to affiliates                                                                                                                  |                                                                                                                              |          | 1,349        |          |   |          | 6,893   |        
|                                                                                  | Other accrued expenses and liabilities                                                                                                  |                                                                                                                              |          | 9,672        |          |   |          | 7,369   |        
|                                                                                  | Deferred revenue                                                                                                                        |                                                                                                                              |          | 4,810        |          |   |          | 5,019   |        
|                                                                                  | Accrued personnel costs                                                                                                                 |                                                                                                                              |          | 4,533        |          |   |          | 6,462   |        
|                                                                                  | Other taxes payable                                                                                                                     |                                                                                                                              |          | 3,571        |          |   |          | 1,631   |        
|                                                                                  |                                                                                                                                         |                                                                                                                              |          |              |          |   |          |        
|                                                                                  | Total current liabilities                                                                                                               |                                                                                                                              |          | 27,199       |          |   |          | 36,120  |        
|                                                                                  | Other non-current liabilities                                                                                                           |                                                                                                                              |          | 1,499        |          |   |          | 1,240   |        
|                                                                                  | Senior convertible notes                                                                                                                |                                                                                                                              |          | 160,000      |          |   |          | 160,000 |        
|                                                                                  |                                                                                                                                         |                                                                                                                              |          |              |          |   |          |        
|                                                                                  |                                                                                                                                         | Total liabilities                                                                                                            |          |              | 188,698  |   |          |         | 197,360 |  
|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  $314,249 liquidation
    value; issued and outstanding shares  115,244,559
    (December 31, 2002  126,876,099) |          |              | 1,152    |   |          |         | 1,269   |  
|                                                                                  |                                                                                                                                         | Series C  $216,863 liquidation
    value; issued and outstanding shares  79,518,702
    (December 31, 2002  111,413,994)  |          |              | 795      |   |          |         | 1,114   |  
|                                                                                  | Series D and E cumulative redeemable
    convertible; 25,000,000 shares authorized each; none issued
    or outstanding                 |                                                                                                                              |          |             |          |   |          |        |        
|                                                                                  |                                                                                                                                         |                                                                                                                              |          |              |          |   |          |        
|                                                                                  |                                                                                                                                         |                                                                                                                              | 1,947    |              |          |   | 2,383    |        
|Common stock, $.01 par value;
    2,250,000,000 shares authorized:                |                                                                                                                                         |                                                                                                                              |          |              |          |   |          |        
|                                                                                  | Class A 
    1,400,000,000 shares authorized; issued and outstanding
    shares  135,186,195 (December 31,
    2002-67,070,065)       |                                                                                                                              |          | 1,352        |          |   |          | 671     |        
|                                                                                  | Class B and C 
    450,000,000 shares of series B and
    400,000,000 shares of series C authorized; none issued
    and outstanding   |                                                                                                                              |          |             |          |   |          |        |        
|                                                                                  |                                                                                                                                         |                                                                                                                              |          |              |          |   |          |        
|                                                                                  |                                                                                                                                         |                                                                                                                              | 1,352    |              |          |   | 671      |        
|Additional paid-in capital                                                        |                                                                                                                                         |                                                                                                                              | 822,471  |              |          |   | 804,801  |        
|Unearned services                                                                 |                                                                                                                                         |                                                                                                                              | (101,156 | )            |          |   | (147,045 | )      
|Accumulated other comprehensive loss                                              |                                                                                                                                         |                                                                                                                              | (4,956   | )            |          |   | (6,018   | )      
|Accumulated deficit                                                               |                                                                                                                                         |                                                                                                                              | (852,617 | )            |          |   | (751,878 | )      
|                                                                                  |                                                                                                                                         |                                                                                                                              |          |              |          |   |          |        
|                                                                                  |                                                                                                                                         | Total stockholders equity (capital
    deficiency)                                                                          |          |              | (132,959 | ) |          |         | (97,086 | )
|                                                                                  |                                                                                                                                         |                                                                                                                              |          |              |          |   |          |        
|                                                                                  |                                                                                                                                         | Total Liabilities and Stockholders Equity
    (Capital Deficiency)                                                          |          | $            | 55,739   |   |          | $       | 100,274 |  
|                                                                                  |                                                                                                                                         |                                                                                                                              |          |              |          |   |          |        

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

F-2



---



##### Table of Contents



AMERICA ONLINE LATIN
AMERICA, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                       |                                                                                                                     |                                                    |          |             |         |      |          |            |         |   |          |            |         | 
|------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------- | -------- | ----------- | ------- | ---- | -------- | ---------- | ------- | - | -------- | ---------- | ------- | 
|                                                       |                                                                                                                     |                                                   
|                                                       |                                                                                                                     | Year Ended December 31,                           
|                                                       |                                                                                                                     |                                                   
|                                                       |                                                                                                                     | 2003                                               |          | 2002        |         | 2001
|                                                       |                                                                                                                     |                                                    |          |             |         |     
|                                                       |                                                                                                                     |                                                   
|                                                       |                                                                                                                     | (In thousands, except share and per share amounts)
|Revenues:                                              |                                                                                                                     |                                                    |          |             |         |      |          |            |         |   |          |           
|                                                       | Subscriptions                                                                                                       |                                                    | $        | 59,415      |         |      | $        | 62,998     |         |   | $        | 49,918     |        
|                                                       | Advertising and other                                                                                               |                                                    |          | 5,759       |         |      |          | 9,109      |         |   |          | 16,525     |        
|                                                       |                                                                                                                     |                                                    |          |             |         |      |          |            |         |   |          |           
|                                                       |                                                                                                                     | Total revenues                                     |          |             | 65,174  |      |          |            | 72,107  |   |          |            | 66,443  | 
|                                                       |                                                                                                                     |                                                    |          |             |         |      |          |            |         |   |          |           
|Costs and expenses:                                    |                                                                                                                     |                                                    |          |             |         |      |          |            |         |   |          |           
|                                                       | Cost of revenues                                                                                                    |                                                    |          | 56,387      |         |      |          | 98,695     |         |   |          | 128,896    |        
|                                                       | Sales and marketing                                                                                                 |                                                    |          | 65,397      |         |      |          | 97,170     |         |   |          | 191,024    |        
|                                                       | General and administrative                                                                                          |                                                    |          | 27,051      |         |      |          | 32,871     |         |   |          | 41,591     |        
|                                                       |                                                                                                                     |                                                    |          |             |         |      |          |            |         |   |          |           
|                                                       |                                                                                                                     | Total costs and expenses                           |          |             | 148,835 |      |          |            | 228,736 |   |          |            | 361,511 | 
|                                                       |                                                                                                                     |                                                    |          |             |         |      |          |            |         |   |          |           
|Loss from operations                                   |                                                                                                                     |                                                    | (83,661  | )           |         |      | (156,629 | )          |         |   | (295,068 | )         
|Interest expense                                       |                                                                                                                     |                                                    | (17,990  | )           |         |      | (5,302   | )          |         |   | (22      | )         
|Other income, net                                      |                                                                                                                     |                                                    | 916      |             |         |      | 139      |            |         |   | 4,775    |           
|                                                       |                                                                                                                     |                                                    |          |             |         |      |          |            |         |   |          |           
|Loss before income taxes                               |                                                                                                                     |                                                    | (100,735 | )           |         |      | (161,792 | )          |         |   | (290,315 | )         
|Income taxes                                           |                                                                                                                     |                                                    | (4       | )           |         |      | (75      | )          |         |   |         |           
|                                                       |                                                                                                                     |                                                    |          |             |         |      |          |            |         |   |          |           
|Net loss                                               |                                                                                                                     |                                                    | (100,739 | )           |         |      | (161,867 | )          |         |   | (290,315 | )         
|Less: Dividends on Series B and C preferred
    shares |                                                                                                                     |                                                    | 15,869   |             |         |      | 18,724   |            |         |   | 17,005   |           
|                                                       |                                                                                                                     |                                                    |          |             |         |      |          |            |         |   |          |           
|Net loss applicable to common
    stockholders         |                                                                                                                     | $                                                  | (116,608 | )           |         | $    | (180,591 | )          |         | $ | (307,320 | )         
|                                                       |                                                                                                                     |                                                    |          |             |         |      |          |            |         |   |          |           
|                                                       | Loss per common share, basic and diluted                                                                            |                                                    | $        | (0.88       | )       |      | $        | (2.69      | )       |   | $        | (4.66      | )      
|                                                       |                                                                                                                     |                                                    |          |             |         |      |          |            |         |   |          |           
|                                                       | Weighted average basic and diluted number of
    common shares outstanding                                          |                                                    |          | 132,903,430 |         |      |          | 67,067,603 |         |   |          | 66,017,796 |        
|                                                       |                                                                                                                     |                                                    |          |             |         |      |          |            |         |   |          |           
|SUPPLEMENTAL RELATED PARTIES
    DISCLOSURE:           |                                                                                                                     |                                                    |          |             |         |      |          |            |         |   |          |           
|                                                       | Transactions with affiliated parties are
    reflected in the consolidated statements of operations as
    follows: |                                                    |          |             |         |      |          |            |         |   |          |            |        
|                                                       |                                                                                                                     | Subscription revenues                              |          | $           | 14,530  |      |          | $          | 10,855  |   |          | $          | 4,724   | 
|                                                       |                                                                                                                     | Advertising and other revenues                     |          |             | 1,797   |      |          |            | 3,211   |   |          |            | 2,631   | 
|                                                       |                                                                                                                     | Cost of revenues                                   |          |             | 11,715  |      |          |            | 21,629  |   |          |            | 23,984  | 
|                                                       |                                                                                                                     | Sales and marketing                                |          |             | 42,116  |      |          |            | 41,277  |   |          |            | 42,795  | 
|                                                       |                                                                                                                     | General and administrative                         |          |             | 44      |      |          |            | 1,808   |   |          |            | 2,297   | 
|                                                       |                                                                                                                     | Interest expense                                   |          |             | 17,845  |      |          |            | 5,161   |   |          |            |        | 

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

F-3



---



##### Table of Contents



AMERICA ONLINE LATIN
AMERICA, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY (CAPITAL DEFICIENCY)

|                                                                             |                          |                                      |             |              |  |            |       |          |  |               |             |             |  |               |       |         |  |       |         |   |  |   |          |   |  |   |        |   |  |   |          |   |  |   |          |          |  
|---------------------------------------------------------------------------- | ------------------------ | ------------------------------------ | ----------- | ------------ |  | ---------- | ----- | -------- |  | ------------- | ----------- | ----------- |  | ------------- | ----- | ------- |  | ----- | ------- | - |  | - | -------- | - |  | - | ------ | - |  | - | -------- | - |  | - | -------- | -------- | -
|                                                                             |                          |                                      |             |              |  |            |       |          |  | Accumulated   |             |             |  |              
|                                                                             |                          | Preferred Stock                      |             | Common Stock |  | Additional |       |          |  | Other         |             |             |  |              
|                                                                             |                          |                                      |             |              |  | Paid-in    |       | Unearned |  | Comprehensive |             | Accumulated |  |              
|                                                                             |                          | Shares                               |             | Amount       |  | Shares     |       | Amount   |  | Capital       |             | Services*   |  | Income (Loss) |       | Deficit |  | Total
|                                                                             |                          |                                      |             |              |  |            |       |          |  |               |             |             |  |               |       |         |  |      
|                                                                             |                          |                                     
|                                                                             |                          | (In thousands, except share amounts)
|Balances at December 31, 2000                                                |                          |                                      | 199,662,294 |              |  | $          | 1,997 |          |  |               | 62,848,124  |             |  | $             | 629   |         |  | $     | 651,491 |   |  | $ | (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       |                          |                                      | 27,762,156  |              |  |            | 277   |          |  |               | 4,237,840   |             |  |               | 42    |         |  |       | 148,534 |   |  |   |         |   |  |   |       |   |  |   |         |   |  |   | 148,853  |         
|Return of stock in escrow                                                    |                          |                                      |            |              |  |            |      |          |  |               | (31,250     | )           |  |               |      |         |  |       | (216    | ) |  |   | 216      |   |  |   |       |   |  |   |         |   |  |   |         |         
|Non-cash marketing expense amortization***                                   |                          |                                      |            |              |  |            |      |          |  |               |            |             |  |               |      |         |  |       |        |   |  |   | 41,845   |   |  |   |       |   |  |   |         |   |  |   | 41,845   |         
|Non-cash compensation expense**                                              |                          |                                      |            |              |  |            |      |          |  |               |            |             |  |               |      |         |  |       | 905     |   |  |   | (581     | ) |  |   |       |   |  |   |         |   |  |   | 324      |         
|                                                                             |                          |                                      |             |              |  |            |       |          |  |               |             |             |  |               |       |         |  |       |         |   |  |   |          |   |  |   |        |   |  |   |          |   |  |   |          |         
|Balances at December 31, 2001                                                |                          |                                      | 227,424,450 |              |  |            | 2,274 |          |  |               | 67,054,714  |             |  |               | 671   |         |  |       | 800,714 |   |  |   | (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 | )
|Interest paid with issuance of Series B
    preferred shares                 |                          |                                      | 10,865,643  |              |  |            | 109   |          |  |               |            |             |  |               |      |         |  |       | 4,048   |   |  |   |         |   |  |   |       |   |  |   |         |   |  |   | 4,157    |         
|Stock options exercised                                                      |                          |                                      |            |              |  |            |      |          |  |               | 15,351      |             |  |               |      |         |  |       | 39      |   |  |   |         |   |  |   |       |   |  |   |         |   |  |   | 39       |         
|Non-cash marketing expense
    amortization ***                              |                          |                                      |            |              |  |            |      |          |  |               |            |             |  |               |      |         |  |       |        |   |  |   | 41,845   |   |  |   |       |   |  |   |         |   |  |   | 41,845   |         
|Non-cash compensation expense                                                |                          |                                      |            |              |  |            |      |          |  |               |            |             |  |               |      |         |  |       |        |   |  |   | 301      |   |  |   |       |   |  |   |         |   |  |   | 301      |         
|                                                                             |                          |                                      |             |              |  |            |       |          |  |               |             |             |  |               |       |         |  |       |         |   |  |   |          |   |  |   |        |   |  |   |          |   |  |   |          |         
|Balances at December 31, 2002                                                |                          |                                      | 238,290,093 |              |  |            | 2,383 |          |  |               | 67,070,065  |             |  |               | 671   |         |  |       | 804,801 |   |  |   | (147,045 | ) |  |   | (6,018 | ) |  |   | (751,878 | ) |  |   | (97,086  | )       
|Net loss                                                                     |                          |                                      |            |              |  |            |      |          |  |               |            |             |  |               |      |         |  |       |        |   |  |   |         |   |  |   |       |   |  |   | (100,739 | ) |  |   | (100,739 | )       
|Foreign currency translation adjustment                                      |                          |                                      |            |              |  |            |      |          |  |               |            |             |  |               |      |         |  |       |        |   |  |   |         |   |  |   | 1,062  |   |  |   |         |   |  |   | 1,062    |         
|                                                                             |                          |                                      |             |              |  |            |       |          |  |               |             |             |  |               |       |         |  |       |         |   |  |   |          |   |  |   |        |   |  |   |          |   |  |   |          |         
|                                                                             | Total comprehensive loss |                                      |             |              |  |            |       |          |  |               |             |             |  |               |       |         |  |       |         |   |  |   |          |   |  |   |        |   |  |   |          |   |  |   |          | (99,677  | )
|Interest paid with issuance of Series B
    preferred shares                 |                          |                                      | 24,538,240  |              |  |            | 245   |          |  |               |            |             |  |               |      |         |  |       | 17,600  |   |  |   |         |   |  |   |       |   |  |   |         |   |  |   | 17,845   |         
|Conversion of preferred shares to common                                     |                          |                                      | (68,065,072 | )            |  |            | (681  | )        |  |               | 68,065,072  |             |  |               | 681   |         |  |       |        |   |  |   |         |   |  |   |       |   |  |   |         |   |  |   |         |         
|Stock options exercised                                                      |                          |                                      |            |              |  |            |      |          |  |               | 51,058      |             |  |               |      |         |  |       | 70      |   |  |   |         |   |  |   |       |   |  |   |         |   |  |   | 70       |         
|Non-cash marketing expense amortization***                                   |                          |                                      |            |              |  |            |      |          |  |               |            |             |  |               |      |         |  |       |        |   |  |   | 41,162   |   |  |   |       |   |  |   |         |   |  |   | 41,162   |         
|Proceeds in accordance with strategic marketing
    agreement                |                          |                                      |            |              |  |            |      |          |  |               |            |             |  |               |      |         |  |       |        |   |  |   | 4,486    |   |  |   |       |   |  |   |         |   |  |   | 4,486    |         
|Non-cash compensation expense                                                |                          |                                      |            |              |  |            |      |          |  |               |            |             |  |               |      |         |  |       |        |   |  |   | 241      |   |  |   |       |   |  |   |         |   |  |   | 241      |         
|                                                                             |                          |                                      |             |              |  |            |       |          |  |               |             |             |  |               |       |         |  |       |         |   |  |   |          |   |  |   |        |   |  |   |          |   |  |   |          |         
|Balances at December 31, 2003                                                |                          |                                      | 194,763,261 |              |  | $          | 1,947 |          |  |               | 135,186,195 |             |  | $             | 1,352 |         |  | $     | 822,471 |   |  | $ | (101,156 | ) |  | $ | (4,956 | ) |  | $ | (852,617 | ) |  | $ | (132,959 | )       
|                                                                             |                          |                                      |             |              |  |            |       |          |  |               |             |             |  |               |       |         |  |       |         |   |  |   |          |   |  |   |        |   |  |   |          |   |  |   |          |         



---



| |   |                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | * | 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
    $0.9 million intrinsic value of stock options granted less
    $0.6 million in deferred compensation cost related to an
    employee stock option grant.



|    |                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*** | Represents the amortization associated with the
    stock issued to Banco Itaú for the marketing services
    strategic alliance. See accompanying note 4 included herein.

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

F-4



---



##### Table of Contents



AMERICA ONLINE LATIN
AMERICA, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

For the Years Ended December 31, 2003,
2002 and 2001


|                                                                 |                                                                                 |                                                                   |                                                         |          |        |        |          |          |         |         |          |          |        |         | 
|---------------------------------------------------------------- | ------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ------------------------------------------------------- | -------- | ------ | ------ | -------- | -------- | ------- | ------- | -------- | -------- | ------ | ------- | 
|                                                                 |                                                                                 |                                                                  
|                                                                 |                                                                                 | Year Ended December 31,                                          
|                                                                 |                                                                                 |                                                                  
|                                                                 |                                                                                 | 2003                                                              |                                                         | 2002     |        | 2001  
|                                                                 |                                                                                 |                                                                   |                                                         |          |        |       
|                                                                 |                                                                                 |                                                                  
|                                                                 |                                                                                 | (In thousands)                                                   
|Operating Activities:                                            |                                                                                 |                                                                   |                                                         |          |        |        |          |          |         |         |          |         
|                                                                 | Net loss                                                                        |                                                                   | $                                                       | (100,739 | )      |        | $        | (161,867 | )       |         | $        | (290,315 | )     
|                                                                 | Adjustments to reconcile net loss to net cash
    used in operating activities: |                                                                   |                                                         |          |        |        |          |          |         |         |          |          |       
|                                                                 |                                                                                 | Provision (benefit) for uncollectible accounts                    |                                                         |          | 25     |        |          |          | (451    | )       |          |          | 2,210  |        
|                                                                 |                                                                                 | Depreciation and amortization                                     |                                                         |          | 3,694  |        |          |          | 5,028   |         |          |          | 4,920  |        
|                                                                 |                                                                                 | Non-cash asset impairment charges and lease
    reserves          |                                                         |          | 1,012  |        |          |          | 948     |         |          |          | 1,473  |        
|                                                                 |                                                                                 | (Gain) loss from investment securities                            |                                                         |          | (36    | )      |          |          | 810     |         |          |          | (385   | )      
|                                                                 |                                                                                 | Non-cash marketing expense                                        |                                                         |          | 41,162 |        |          |          | 41,845  |         |          |          | 41,845 |        
|                                                                 |                                                                                 | Non-cash stock based compensation expense                         |                                                         |          | 241    |        |          |          | 301     |         |          |          | 324    |        
|                                                                 |                                                                                 | Issuance of preferred stock in lieu of interest
    due affiliate |                                                         |          | 17,845 |        |          |          | 4,157   |         |          |          |       |        
|Changes in operating assets and liabilities:                     |                                                                                 |                                                                   |                                                         |          |        |        |          |          |         |         |          |         
|                                                                 |                                                                                 | Trade accounts receivable                                         |                                                         |          | 2,064  |        |          |          | (52     | )       |          |          | (9,741 | )      
|                                                                 |                                                                                 | Other operating assets                                            |                                                         |          | (810   | )      |          |          | 347     |         |          |          | 7,322  |        
|                                                                 |                                                                                 | Operating liabilities                                             |                                                         |          | (5,341 | )      |          |          | (14,960 | )       |          |          | 6,658  |        
|                                                                 |                                                                                 | Deferred revenues                                                 |                                                         |          | 425    |        |          |          | 153     |         |          |          | (376   | )      
|                                                                 |                                                                                 | Payables to affiliates                                            |                                                         |          | (5,752 | )      |          |          | (3,980  | )       |          |          | 8,173  |        
|                                                                 |                                                                                 |                                                                   |                                                         |          |        |        |          |          |         |         |          |         
|Net cash used in operating activities                            |                                                                                 |                                                                   | (46,210                                                 | )        |        |        | (127,721 | )        |         |         | (227,892 | )       
|                                                                 |                                                                                 |                                                                   |                                                         |          |        |        |          |          |         |         |          |         
|Investing Activities:                                            |                                                                                 |                                                                   |                                                         |          |        |        |          |          |         |         |          |         
|                                                                 | Capital spending                                                                |                                                                   |                                                         | (1,559   | )      |        |          | (2,026   | )       |         |          | (5,998   | )     
|                                                                 | Proceeds from sale of short-term investments                                    |                                                                   |                                                         |         |        |        |          |         |         |         |          | 69,357   |       
|                                                                 | Product development costs                                                       |                                                                   |                                                         |         |        |        |          |         |         |         |          | (194     | )     
|                                                                 |                                                                                 |                                                                   |                                                         |          |        |        |          |          |         |         |          |         
|                                                                 |                                                                                 |                                                                   | Net cash (used in) provided by investing
    activities |          |        | (1,559 | )        |          |         | (2,026  | )        |          |        | 63,165  | 
|                                                                 |                                                                                 |                                                                   |                                                         |          |        |        |          |          |         |         |          |         
|Financing Activities:                                            |                                                                                 |                                                                   |                                                         |          |        |        |          |          |         |         |          |         
|                                                                 | Proceeds from issuance of senior convertible
    notes, net of issuance costs   |                                                                   |                                                         |         |        |        |          | 159,451  |         |         |          |         |       
|                                                                 | Net proceeds from affiliate capital contributions                               |                                                                   |                                                         |         |        |        |          |         |         |         |          | 148,853  |       
|                                                                 | Proceeds in accordance with strategic marketing
    agreement                   |                                                                   |                                                         | 4,486    |        |        |          |         |         |         |          |         |       
|                                                                 | Proceeds from stock options exercised                                           |                                                                   |                                                         | 70       |        |        |          | 39       |         |         |          |         |       
|                                                                 |                                                                                 |                                                                   |                                                         |          |        |        |          |          |         |         |          |         
|                                                                 |                                                                                 |                                                                   | Net cash provided by financing activities               |          |        | 4,556  |          |          |         | 159,490 |          |          |        | 148,853 | 
|                                                                 |                                                                                 |                                                                   |                                                         |          |        |        |          |          |         |         |          |         
|Effect of exchange rate changes on cash and cash
    equivalents |                                                                                 |                                                                   | 613                                                     |          |        |        | (918     | )        |         |         | (959     | )       
|                                                                 |                                                                                 |                                                                   |                                                         |          |        |        |          |          |         |         |          |         
|Net (decrease) increase in cash and cash
    equivalents         |                                                                                 |                                                                   | (42,600                                                 | )        |        |        | 28,825   |          |         |         | (16,833  | )       
|Cash and cash equivalents, beginning of period                   |                                                                                 |                                                                   | 75,501                                                  |          |        |        | 46,676   |          |         |         | 63,509   |         
|                                                                 |                                                                                 |                                                                   |                                                         |          |        |        |          |          |         |         |          |         
|Cash and cash equivalents, end of period                         |                                                                                 | $                                                                 | 32,901                                                  |          |        | $      | 75,501   |          |         | $       | 46,676   |         
|                                                                 |                                                                                 |                                                                   |                                                         |          |        |        |          |          |         |         |          |         
|Supplemental cash flow disclosure                                |                                                                                 |                                                                   |                                                         |          |        |        |          |          |         |         |          |         
|Income taxes paid                                                |                                                                                 | $                                                                 |                                                        |          |        | $      | 53       |          |         | $       |         |         
|                                                                 |                                                                                 |                                                                   |                                                         |          |        |        |          |          |         |         |          |         
|Interest paid                                                    |                                                                                 | $                                                                 | 28                                                      |          |        | $      | 1,008    |          |         | $       |         |         
|                                                                 |                                                                                 |                                                                   |                                                         |          |        |        |          |          |         |         |          |         

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

F-5



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##### Table of Contents



AMERICA ONLINE LATIN AMERICA

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2003




|         |                                            
|-------- | -------------------------------------------
|Note 1  | Organization and Basis of
    Presentation:

America Online Latin America, Inc.
(AOLA or the Company) began operations
in December 1998. 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, Inc.
(America Online), AOLA also provides certain Spanish
language content to America Onlines subscribers in Puerto
Rico and markets the AOL-branded service in Puerto Rico.

The Company launched its new web-based content
and connectivity services in Brazil, Argentina and Puerto Rico
in September 2003, October 2003 and February 2004, respectively.
The web-based services are priced at lower rates than the
Companys AOLA country services. AOLA expects these new
services to better allow it to compete on the basis of price in
all of its markets and, in Brazil, to allow consumers to choose
the features they need. The Company believes its new web-based
services in Brazil and Argentina will become its primary
products in those countries, although at present the majority of
its members in those countries are using the AOLA country
service. AOLA is no longer actively promoting the AOLA country
service in Brazil and Argentina, although they are still
available. AOLA expects to experience migration of membership
from its AOL Brazil and AOL Argentina country services to its
new web-based services. To date, approximately 38% of
subscribers to its web-based services in Brazil and Argentina
have migrated from its AOLA country services.

AOLA offers a web-based service in Puerto Rico,
which it markets as Conexis, but it does not expect
it to become AOLAs primary product offering. AOLA expects
to experience migration from the AOL-branded service in Puerto
Rico to its web-based service. The Company began testing a
web-based service in Mexico in September 2003, and its decision
on whether or not to launch this service in Mexico will depend
on these test results. The Company does not expect a web-based
service in Mexico to become its primary product offering in that
country.

AOLA derives its revenues principally from member
subscriptions to its AOLA country services, and to a lesser
extent, from its web-based interactive services and advertising
and other revenues. 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 of Companies (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, AOLA entered into a note
purchase agreement with Time Warner Inc. (Time
Warner), the parent company of America Online. Under the
note purchase agreement, Time Warner made available to AOLA
$160.0 million in exchange for senior convertible notes of
AOLA due in March 2007. AOLA completed the draw down of the
entire amount available to it 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 AOLA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 are redeemable by AOLA at any time,
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 AOLA raises additional debt or equity funds.
Interest is

F-6



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##### Table of Contents



AMERICA ONLINE LATIN AMERICA


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

payable either in cash or preferred stock, at the
Companys option. However, the interest payment on the
final maturity date must be made in cash only. 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 anticipates that available cash on hand of
$32.9 million as of December 31, 2003, will be
sufficient to fund operations into the first quarter of 2005,
based upon its current operating budget. The Companys
expectations underlying its current operating budget and the
duration of funding sufficiency are based upon certain estimates
that AOLA believes are commercially reasonable in relation to
historical experience. These estimates include paid membership
levels and turnover, consumer acceptance of its new web-based
interactive services, pricing of its services and continued cost
reductions. As of March 2004, approximately $1.3 million of
AOLAs cash on hand served to collateralize certain Company
obligations to employees and was not, and will not be, available
for general corporate use. In total, the Company may be
obligated to make payments amounting up to $2.8 million
under these obligations.

AOLAs planning is focused on achieving
operating cash self-sufficiency beyond 2004 based on available
cash on hand. The Company also continues to explore various
opportunities designed to provide it with additional capital
resources in the future, in the event it is unable to achieve
its operating goals. In addition, the Company has not identified
additional sources of financing necessary to repay the $160.0
million senior convertible notes that will be due in March 2007.
There can be no assurance that AOLA will be successful in its
efforts to achieve cash self-sufficiency with available
resources, or that it will be able to identify additional
sources of capital to repay its debt obligations or operate its
business, if needed. An additional restriction on the
Companys ability to obtain additional funding is that the
holders of the senior convertible notes can require that the
proceeds of any such financing or the sale of assets be used to
repay the senior convertible notes. In addition, there is no
commitment or obligation from America Online, the Cisneros Group
or Banco Itaú to fund any of AOLAs future
requirements. Furthermore, Time Warner has stated that it does
not intend to provide AOLA with additional funding.



|         |                                                
|-------- | -----------------------------------------------
|Note 2  | Summary of Significant Accounting
    Policies:



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

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



| |                 
| | ----------------
| | 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 other income.

F-7



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##### Table of Contents



AMERICA ONLINE LATIN AMERICA


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                
| | -----------------------------------------------
| | 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 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,
although it does not expect to do so in the near term future.
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. Revenues from subscribers to
Puerto Rico, which are received directly from America Online,
are recognized when the fees become due. AOLA records deferred
revenues when it has received payments from subscribers but has
not yet provided its interactive services.

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
programming services provided to America Online for its Latino
content area, 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 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. In November 1999, AOLA received
$4.5 million in equity securities of Hollywood Media Corp.
in exchange for future services to be provided to Hollywood
Media Corp. This contract expired in October 2003. AOLA did not
receive any equity securities for future services during the
years ended December 31, 2003, 2002 or 2001.

AOLA 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 APB 29,
Accounting for Non-Monetary Transactions and
the 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 any periods
presented.

AOLA has entered into zero-cost agreements with
telecommunications companies who provide the Company with modem
ports that are used by its customers to access its interactive
services and the Internet. Under these agreements, AOLA provides
the telecommunications providers with advertising in exchange
for the use of the ports. AOLA credits the value of the
advertising it provides against its telecommunications expense
in cost of revenues because it is not able to reliably determine
the fair value of the ports under these arrangements.

F-8



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##### Table of Contents



AMERICA ONLINE LATIN AMERICA


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

AOLA accounts for direct marketing costs incurred
for acquiring subscribers as well as other advertising costs as
required by 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.

Excluding the general and administrative
component related to sales and marketing expenses, brand
marketing and member acquisition costs totaled approximately
$60.2 million in the year ended December 31, 2003,
$90.9 million in the year ended December 31, 2002 and
$184.4 million in the year ended December 31, 2001.

Contained within sales and marketing expense is
the amortization of 31,7000,000 shares of class A
common stock given to Banco Itaú in June 2000, in
consideration for its entering into a ten-year strategic
alliance with AOLA. This amount, which was valued at
$253.6 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 valuation 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 service
related to the Banco Itaú strategic alliance amounted to
$41.2 million in the year ended December 31, 2003 and
$41.8 million for each of the years ended December 31,
2002 and 2001. This expense is included in the accompanying
consolidated statements of operations under 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 are classified as
Investments. The Company has a letter of credit
outstanding in support of its U.S. office lease which is
collateralized by a certificate of deposit in the amount of
$0.3 million. As of March 2004, approximately
$1.3 million of AOLAs cash on hand served to
collateralize obligations under executive retention agreements
and is not, and will not be, available for general corporate
use. This collateral is not available for general corporate use.



| |                                                         
| | --------------------------------------------------------
| | 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 net of applicable taxes 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-for-sale securities is determined on a specific
identification basis. AOLA held no debt securities at
December 31, 2003 and December 31, 2002.

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, 2003 and 2002 amounted to $194,000 and
$158,000, respectively, including the fair value of the warrants
of $36,000 and $30,000 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,

F-9



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##### Table of Contents



AMERICA ONLINE LATIN AMERICA


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

AOLA recorded an impairment charge of
approximately $761,000 to other income, net during the year
ended December 31, 2002. Under the criteria established by
Statement of Financial Accounting Standards No. 133
(SFAS No. 133), Accounting for
Derivative Instruments and Hedging Activities,the
warrants acquired in this transaction are classified as
derivatives.



| |                                              
| | ---------------------------------------------
| | 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, although
this concentration has been decreasing in line with the
reduction experienced in advertising revenue. At
December 31, 2003 and 2002, the balances of receivables
outstanding related to advertising represented approximately 55%
and 73% of the total credit portfolio, respectively.

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 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. 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. The
Company writes off delinquent balances when all reasonable
collection efforts have been exhausted.

AOLA recorded provisions to the allowance of
approximately $25,000 in the year ended December 31, 2003
and $2.2 million in the year ended December 31, 2001.
AOLA recorded net recoveries of allowances of approximately
$0.5 million in the year ended December 31, 2002.
Write-offs against the allowance totaled $0.4 million,
$0.8 million and $0.8 million in the years ended
December 31, 2003, 2002, and 2001, respectively.



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

Property and equipment, including leasehold
improvements, are carried at cost less accumulated depreciation
and impairment allowances. Depreciation or amortization is
provided using the straight-line method over the estimated
useful life of each type of asset. Amortization of leasehold
improvements and allowances 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 for its
call centers in Brazil and Mexico, AOLA incurred a charge of
approximately $1.0 million for the impairment of leasehold
improvements and furniture and equipment in the year ended
December 31, 2003, which is included in cost of revenues in
the accompanying consolidated statement of operations. In
connection with the abandonment of leased facilities at its
Fort Lauderdale offices, AOLA incurred a charge of
approximately $0.6 million during the year ended
December 31, 2001, for the impairment of leasehold

F-10



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##### Table of Contents



AMERICA ONLINE LATIN AMERICA


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

improvements and furniture, which is included in
general and administrative expenses in the accompanying
consolidated statement of operations.

AICPA Statement of Position (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
development 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 and other liabilities approximate their fair market
value due to their short-term nature. Management believes that
it is not practicable to estimate the fair value of its
$160.0 million senior convertible notes issued to Time
Warner as there is no market for the notes and the entire
outstanding principal amount is held by one entity.



| |                      
| | ---------------------
| | 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

F-11



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##### Table of Contents



AMERICA ONLINE LATIN AMERICA


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.

No compensation expense was recognized related to
options granted in the years ended December 31, 2003 and
2002, since the Company did not issue any grants at below fair
market value. Total expense recognized in relation to the
granting of stock options issued below market price was limited
to approximately $241,000 in the year ended December 31,
2003, $301,000 in the year ended December 31, 2002 and
$324,000 in the year December 31, 2001, and was related to
an options grant issued to AOLAs Chief Executive Officer
in 2001. 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,              
|                                                              |  |                                      
|                                                              |  | 2003                                  |          | 2002 |  | 2001
|                                                              |  |                                       |          |      |  |     
|                                                              |  |                                      
|                                                              |  | (In thousands, except per share data)
|Reported                                                      |  |                                       |          |      |  |      |          |   |  |   |          |  
|Net loss applicable to common stockholders                    |  | $                                     | (116,608 | )    |  | $    | (180,591 | ) |  | $ | (307,320 | )
|Loss per common share  basic and
    diluted                 |  | $                                     | (0.88    | )    |  | $    | (2.69    | ) |  | $ | (4.66    | )
|Recorded employee stock-based compensation                    |  | $                                     | 241      |      |  | $    | 301      |   |  | $ | 324      |  
|Employee stock-based compensation under fair
    value method |  | $                                     | 61       |      |  | $    | (5,279   | ) |  | $ | (15,116  | )
|Pro forma net loss                                            |  | $                                     | (116,306 | )    |  | $    | (185,569 | ) |  | $ | (322,112 | )
|Loss per common share  basic and
    diluted                 |  | $                                     | (0.88    | )    |  | $    | (2.77    | ) |  | $ | (4.88    | )

F-12



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##### Table of Contents



AMERICA ONLINE LATIN AMERICA


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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,
|                                               |  |             
|                                               |  | 2003         |       | 2002
|                                               |  |              |       |     
|Risk free interest rate                        |  |              | 3.61  | %    |  |   | 2.63 | %
|Expected life (in years)                       |  |              | 4.5   |      |  |   | 4.5  |  
|Expected volatility                            |  |              | 120.0 | %    |  |   | 70.0 | %
|Expected dividend yield                        |  |              | 0.0   | %    |  |   | 0.0  | %
|Weighted average fair value of options granted |  | $            | 0.60  |      |  | $ | 0.88 |  



| |                   
| | ------------------
| | Comprehensive Loss

Comprehensive loss is defined as the change
during a period in the equity of a business enterprise from
transactions and other events and circumstances, except for
those resulting from investments by owners and distributions to
owners. In addition to its net loss, AOLAs 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
December 31, 2002 to conform to the presentation of the
consolidated financial statements for the year ended
December 31, 2003.



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



| |                           
| | --------------------------
| | Variable Interest Entities

In January 2003, the FASB issued FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities  an Interpretation of ARB
No. 51 (FIN 46), which requires
variable interest entities (VIEs), often referred to
as special purpose entities (SPEs), to be
consolidated by the primary beneficiary of an entity if certain
criteria are met. FIN 46 was effective upon issuance for
all new VIEs created after January 31, 2003 and effective
July 1, 2003 for VIEs that existed prior to
February 1, 2003. During 2003, the FASB issued a revision
to FIN 46 (FIN 46R) and delayed the
required implementation date of FIN 46 for entities that
are not SPEs until March 31, 2004.

The Company does not have any VIEs that will be
consolidated as a result of this statement. Adoption of this
statement did not have a material impact on the Companys
consolidated financial statements.



| |                                                                                      
| | -------------------------------------------------------------------------------------
| | Certain Financial Instruments with
    Characteristics of Both Liabilities and Equity

In May 2003, the FASB issued Statement
No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and
Equity (FAS 150). FAS 150
requires that an issuer classify certain financial instruments
as a liability because that financial instrument embodies an
obligation of the issuer. The remaining provisions of
FAS 150 expand the definition of a liability to encompass
certain obligations that a reporting entity can or must settle
by issuing its own equity, depending on the nature of

F-13



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##### Table of Contents



AMERICA ONLINE LATIN AMERICA


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the relationship between the holder and the
issuer. FAS 150 became effective for AOLA in the third
quarter of 2003. The adoption of the provisions of FAS 150
did not have a material impact on the Companys
consolidated financial statements.



| |            
| | -----------
| | Investments

In November 2003, the EITF reached a consensus on
EITF No. 03-01, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain
Investments (EITF 03-01).
EITF 03-01 provides guidance on other-than-temporary
impairments and its application to debt and equity investments
and applies to investments in debt and marketable securities
that are accounted for under Statement of Financial Accounting
Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities.
EITF 03-01 requires additional tabular and narrative
disclosure of investments with unrealized losses. The
requirements are effective for fiscal years ending after
December 15, 2003. The adoption of this statement did not
have a material impact on the Companys consolidated
financial statements or disclosures.



| |                             
| | ----------------------------
| | Exit and Disposal Activities

In July 2002, the FASB issued Statement
No. 146, Accounting for Costs Associated with Exit
or Disposal Activities (FAS 146).
FAS 146 nullifies the accounting for restructuring costs
provided in 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). FAS 146 requires that a liability
associated with an exit or disposal activity be recognized and
measured at fair value only when incurred. In addition, one-time
termination benefits should be recognized over the period
employees will render service, if the service period required is
beyond a minimum retention period. FAS 146 is effective for
exit or disposal activities initiated after December 31,
2002. The application of the provisions of FAS 146 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 adoption of the provisions of EITF 00-21 did not
have a material impact on the Companys consolidated
financial statements.



|         |                           
|-------- | --------------------------
|Note 3  | Related Party Transactions

AOLA records the unpaid portion of costs incurred
with related parties in payables to affiliates line item in the
accompanying consolidated balance sheets. America Online charges
fees for providing its 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 an
arms-length basis.

As of December 31, 2003, America Online had
billed AOLA approximately $3.8 million over and above
amounts recorded in the consolidated financial statements. The
difference relates to a portion of items under dispute,
primarily for support services provided by America Online. This
dispute was settled in February 2004 in a manner which is
consistent with the historical accounting treatment and which
did not have any cash impact on the Companys financial
condition. America Online is no longer seeking payment for these
amounts. The Company received a credit for these invoices on
March 18, 2004.

F-14



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##### Table of Contents



AMERICA ONLINE LATIN AMERICA


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 the Company, 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 the Company by America Online; and                            
|
| |  | joint venture assistance.                                                                                                      

AOLA agreed to compensate America Online for
these services at rates at least as favorable to AOLA 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 our competitors cost structures, the Company
believes that the terms of the services agreement are at least
as favorable as AOLA could have obtained from an unaffiliated
third party.

For the 2003 fiscal year, AOLA incurred expenses
totaling approximately $11.8 million payable to America
Online under its services agreement, as compared with
$19.3 million in 2002 and $25.7 million in 2001.

Agreement for Consulting Services with
America Online Relating to U.S. Latino Content
Area

In February 2003, AOLA entered into a one-year
agreement for consulting services with America Online under
which AOLA provides programming services to America Online
related to this mini-channel. AOLA received $750,000 as
consideration for these programming services. This agreement
expired in February 2004. However, AOLA is in discussions with
America Online for a new agreement under which America Online
would pay AOLA $400,000 per year and provide it at no charge
with certain product development services for its
Spanish-language client software. There can be no assurance that
AOLA will be able to reach agreement with America Online
regarding it potential provision of these services.

Advertising Arrangements with America
Online

AOLA has an arrangement with America Online under
which it pay America Online a commission as a finders fee
of 15% of advertising revenues received from global transactions
in which part of the advertising is on the Companys
country services and/or web-based interactive services. The
amount of these payments during fiscal 2003 was approximately
$137,000. Based on managements experience negotiating
similar arrangements, AOLA believes that the terms of this
arrangement are at least as favorable as it could have obtained
from an unaffiliated third party.

Network Arrangement with America
Online

AOLQ has an arrangement with America Online under
which it receives network capacity from Progress Networks.
America Online is a party to the agreement with Progress
Networks and invoices AOLA for the amount of network capacity
AOLA uses. The amount of such payments during fiscal 2003 was
$1.3 million.

F-15



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##### Table of Contents



AMERICA ONLINE LATIN AMERICA


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Letter
Agreement Regarding Puerto Rico Subscribers

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. During 2003, 2002 and 2001, AOLA incurred
$4.0 million, $2.7 million and $1.3 million,
respectively to America Online under this agreement. During
2003, 2002 and 2001, AOLA recorded $13.8 million,
$10.9 million and $4.7 million, respectively, in
subscription revenues consisting of fees collected by America
Online from subscribers to the AOL-branded service in Puerto
Rico.



| |                                         
| | ----------------------------------------
| | Interest on Senior Convertible
    Notes

In 2003, AOLA paid $17.8 million in interest
on the senior convertible notes purchased by Time Warner. The
interest was paid through the issuance of 24,538,240 shares
of series B preferred stock. During 2002, AOLA paid
$5.2 million in interest on the senior convertible notes,
consisting of 10,865,643 shares of series B preferred stock
and $1.0 million in cash.



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

AOLA entered into an advertising agreement with
Turner Broadcasting System Latin America, Inc., an
affiliate of Time Warner. For the years ended December 31,
2003, 2002 and 2001, AOLA purchased approximately
$1.0 million, $0.6 million and $1.0 million,
respectively, in advertising on various Turner media properties.

During the year ended December 31, 2003,
AOLA made prepayment for future advertisement to Turner
Broadcasting in the amount of $1.2 million. Advertising
services are to be delivered at AOLAs discretion, through
December 31, 2004. As of December 31, 2003, the
balance of this prepaid amount was approximately
$0.5 million.



| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | Support Arrangements and Other Agreements
    with the Cisneros Group and Affiliated Companies

AOLA may also receive support services from the
Cisneros Group, who charge fees to AOLA on a cost basis for
those services. The Company did not receive material support
from the Cisneros Group in 2003.

In addition, AOLA has entered into various
agreements with the following companies associated to the
Cisneros Group. In 2003, AOLA entered into an agreement with El
Sitio Management S.A. (Claxson) under which Claxson
provided the Company with chat room technology for AOLAs
web-based services. AOLA has entered into agreements with
Claxson under which AOLA advertised on certain of Claxsons
cable TV properties. AOLA also had an agreement with Pueblo
Supermarkets in Puerto Rico, under which AOLA paid 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. The agreement with Pueblo has
expired.

The costs incurred payable to the Cisneros Group
and its affiliates for the aforementioned services totaled
approximately $30,000, $0.2 million and $0.5 million
in the years ended December 31, 2003, 2002 and 2001,
respectively.



| |                                           
| | ------------------------------------------
| | Advertising Agreements with Banco
    Itaú

AOLA has entered into a series of advertising
agreements with Banco Itaú under which they advertised on
the AOLA country service and web-based services in Brazil. For
the year ended December 31, 2003, AOLA received
$0.6 million from Banco Itaú under this agreement. For
the year

F-16



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##### Table of Contents



AMERICA ONLINE LATIN AMERICA


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

ended December 31, 2002, AOLA received
$0.9 million for advertising services from Banco Itaú.
The amount of payments received by the Company during the year
ended December 31, 2001 was $1.5 million.



| |                  
| | -----------------
| | Dependence on AOL

The termination or loss of exclusivity of
AOLAs license or services agreement with America Online
would adversely impact the Companys business. In exchange
for its initial ownership interest in AOLA, America Online
entered into a royalty-free license agreement and a services
agreement with AOLA. Under the license 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 America Online may develop for the Latin American
market, subject to payment of a license fee. Under the services
agreement, America Online provides services including software
localization, updates, development, and installation services,
server connection services, technical support and training.
America Online may also provide AOLA with business development,
administrative, tax, financial and legal services under the
services agreement.

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 on the date on which
America Online 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 America Online
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, 2003, the Company
had outstanding 115,244,559 shares of series B preferred
stock, which is the series owned by America Online and Time
Warner, and 79,518,702 shares of series C preferred stock,
which is the series owned by the Cisneros Group. The number of
preferred shares outstanding was reduced, as compared with
December 31, 2002, as a result of the conversion of
preferred stock by America Online and the Cisneros Group in
January 2003 in support of AOLAs efforts to comply with
Nasdaq continued listing requirements.

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. An additional 1,996,424 shares of series C
preferred stock held by three individuals, as described in
Note 1, also converted into 1,996,424 shares of
class A common stock.

F-17



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##### Table of Contents



AMERICA ONLINE LATIN AMERICA


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

On July 31, 2001, the stockholders and board
of directors authorized the amendment and restatement of
AOLAs certificate of incorporation. Under the terms of the
Companys amended and restated charter, on August 7,
2005, AOLA must redeem approximately 59.4% of the then
outstanding series B and C preferred stock. The exact percentage
to be redeemed is subject to adjustment based on the number of
shares AOLA will issue in payment of interest on its senior
convertible notes through August 7, 2005, which in turn is
dependent on the price of the Companys class A common
stock. America Online and Time Warner hold AOLAs series B
preferred stock and the Cisneros Group and its affiliates hold
its series C preferred stock. Of the remaining balance of series
B and C preferred stock outstanding, AOLA must redeem an
additional amount on April 2, 2006, and the balance on
March 8, 2007. As of December 31, 2003, AOLA had
115,244,559 shares of series B preferred stock outstanding and
79,518,702 shares of series C preferred stock outstanding. As
per the Companys restated charter, the redemption price
per share will be approximately $2.73, or an aggregate
redemption price for the August 7, 2005 redemption of
approximately $350.0 million (excluding accrued, but unpaid,
dividends of approximately $57.3 million which AOLA is required
to pay at the time of redemption), based on the current number
of shares of series B and C preferred stock currently
outstanding. The series B and series C preferred stock may be
redeemed, at AOLAs option, in cash, by delivery of shares
of class A common stock or by any combination of cash and shares
of class A common stock, valued at its then fair market value.
However, due to the Companys limited cash position, AOLA
expects to redeem these shares of preferred stock through the
issuance of shares of class A common stock. The August 7,
2005, redemption would result in additional dilution to class A
stockholders of approximately 66%, assuming the fair market
value of class A common stock at the time of redemption is $1.31.

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, 2003, the
liquidation value on the series B preferred shares was
approximately $314.2 million, excluding cumulative
dividends of $31.0 million. For the series C preferred
shares, the liquidation value at such date was approximately
$216.9 million, excluding cumulative dividends of
$26.3 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,

F-18



---



##### Table of Contents



AMERICA ONLINE LATIN AMERICA


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

450,000,000 shares of class B common
stock and 400,000,000 shares of class C common stock.
As of December 31, 2003, a total of 135,186,195 shares
of class A common stock were outstanding. The increase in
the number of class A common stock outstanding, as compared
with 67,070,065 shares outstanding at December 31,
2002, resulted primarily from the conversion of preferred stock
by America Online and the Cisneros Group in January 2003 in
support of AOLAs efforts to comply with Nasdaq continued
listing requirements. 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.

The holders of class A common stock are each
entitled to one vote per share. America Online, Time Warner 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, 2003, the Cisneros Group has
contributed approximately $213.9 million to AOLAs
equity capital and America Online has contributed
$116.3 million to AOLAs equity capital. Time Warner
has also 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, 2003, none of AOLAs senior convertible
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, Time Warner and
the Cisneros Group together control approximately 97.6% of the
voting power of outstanding AOLA capital stock, America Online,
Time Warner 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.

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##### Table of Contents



AMERICA ONLINE LATIN AMERICA


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Common shares reserved for issuance at
December 31, 2003 and December 31, 2002 were:

|                              |  |                    |             |      |  |  |             | 
|----------------------------- |  | ------------------ | ----------- | ---- |  |  | ----------- | 
|                              |  |                   
|                              |  | As of December 31,
|                              |  |                   
|                              |  | 2003               |             | 2002
|                              |  |                    |             |     
|Series B Preferred Stock      |  |                    | 115,244,559 |      |  |  | 126,876,099 | 
|Series C Preferred Stock      |  |                    | 79,518,702  |      |  |  | 111,413,994 | 
|AOL Warrant                   |  |                    | 16,541,250  |      |  |  | 16,541,250  | 
|AOLTW Senior Convertible Note |  |                    | 44,150,105  |      |  |  | 44,150,105  | 
|Stock Options                 |  |                    | 22,808,333  |      |  |  | 22,808,333  | 
|                              |  |                    |             |      |  |  |             | 
|                              |  |                    | 278,262,949 |      |  |  | 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. AOLA launched a co-branded, customized
version of our America Online Brazil country 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. AOLA also markets a version of
its web-based interactive services in Banco Itaú branches
containing the same co-branded features as the AOLA country
service.

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.

On December 14, 2002, AOLA entered into an
agreement that restructured the 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. 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 are able to sample the co-branded services and
register in the bank branches. The number of promoters varies
depending on the success of the marketing efforts, which are
reviewed every three months. 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. Furthermore, Banco Itaú is required to
distribute, at AOLAs direction, CD-ROMs 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 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 is 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. Banco Itaú is obligated to make
cash payments to AOLA if minimum annual revenue targets and
marketing commitments are not met through March 2006. The
maximum aggregate amount that Banco Itaú will be required
to pay AOLA if these targets are not met, which are referred to
as reference payments, is $26.0 million, $21.0 million
and $13.0 million in 2004, 2005 and 2006, respectively.
AOLA expects to receive only minimal amounts from Banco
Itaú for their

F-20



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##### Table of Contents



AMERICA ONLINE LATIN AMERICA


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

failure to meet targets for the March 24,
2004 measurement date because of payments received from Banco
Itaú in lieu of marketing, as described below.

Beginning in the second half of 2003, as a result
of lower than expected productivity, AOLA reduced the number of
promoters under the revised marketing agreement. Because of this
reduction and the cancellation of certain CD distributions,
Banco Itaú made payments of $4.5 million to AOLA
during 2003 in lieu of marketing activities it was obligated to
perform under the revised marketing agreement. AOLA expects
these payments to continue in the future but the amounts to
gradually decrease over time as per the terms of the revised
marketing agreement. AOLA has the right to redeploy or reinstate
some of the promoters in the branches in the future, in which
case it would forego such payments from Banco Itaú. Such
payments from Banco Itaú are accounted for as funds from
financing activities in the accompanying consolidated statements
of cash flows and will reduce future marketing expense by
lowering the amortization expense associated with the shares
issued to Banco Itaú. Payments we receive from Banco
Itaú in lieu of marketing activities it is obligated to
make serve to offset amounts that may be owed as reference
payments, since such amounts are considered revenues for
purposes of calculating Banco Itaús performance under
revenue targets.

Banco Itaús customers who register for
the co-branded services currently 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 co-branded AOLA country
service on a monthly, bundled unlimited-use plan, are entitled
to a 20% discount. Banco Itaú, at its option, may subsidize
hours for certain customers who were subscribers to the
co-branded service prior to December 14, 2002. For the year
ended December 31, 2003, AOLA received $0.9 million in subsidies
for its members from Banco Itaú as compared with
$4.2 million in 2002 and $3.1 million in 2001.

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 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 service related to the Banco Itaú strategic
alliance was $41.2 million in the year ended
December 31, 2003, and $41.8 million in each of the
years ended December 31, 2002 and 2001. This expense is
included in the accompanying consolidated statements of
operations as part of sales and marketing expenses.



| |                
| | ---------------
| | 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 IPO price of $8.00 per share. The warrant was
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 AOLA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 of ten years. A total of
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

F-21



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##### Table of Contents



AMERICA ONLINE LATIN AMERICA


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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
non-employees are accounted for based on their fair value. The
activity in AOLAs stock options for the years ended
December 31, 2003, 2002 and 2001 is set forth below:

|                                   |                   |                    |            |                   |         |                   |      |                  |      |               |            |                  |           |   |      |      |      |  |            |            |           |   |      |      |      | 
|---------------------------------- | ----------------- | ------------------ | ---------- | ----------------- | ------- | ----------------- | ---- | ---------------- | ---- | ------------- | ---------- | ---------------- | --------- | - | ---- | ---- | ---- |  | ---------- | ---------- | --------- | - | ---- | ---- | ---- | 
|                                   |                   |                   
|                                   |                   | Year Ended        
|                                   |                   |                   
|                                   |                   |                    |            |                   |         |                  
|                                   |                   | December 31, 2003  |            | December 31, 2002 |         | December 31, 2001
|                                   |                   |                    |            |                   |         |                  
|                                   |                   | Number of          |            | Weighted Average  |         | Number of         |      | Weighted Average |      | Number of     |            | Weighted Average
|                                   |                   | Stock Options      |            | Exercise Price    |         | Stock Options     |      | Exercise Price   |      | Stock Options |            | Exercise Price  
|                                   |                   |                    |            |                   |         |                   |      |                  |      |               |            |                 
|Balance at the beginning of period |                   |                    | 14,725,922 |                   |         | $                 | 5.20 |                  |      |               | 15,848,099 |                  |           | $ | 6.14 |      |      |  | 10,458,965 |            |           | $ | 7.70 |     
|                                   | Options granted   |                    |            |                   |         |                   |      |                  |      |               |            |                  |           |   |      |      |      |  |            |            |           |   |      |      |     
|                                   |                   | At market price    |            |                   | 242,452 |                   |      | $                | 0.98 |               |            |                  | 3,359,720 |   |      | $    | 1.85 |  |            |            | 6,975,030 |   |      | $    | 3.87 | 
|                                   |                   | Below market price |            |                   |        |                   |      |                  |     |               |            |                  |          |   |      |      |     |  |            |            | 250,000   |   |      | $    | 2.72 | 
|                                   |                   |                    |            |                   |         |                   |      |                  |      |               |            |                  |           |   |      |      |      |  |            |            |           |   |      |     
|                                   |                   |                    | 242,452    |                   |         | $                 | 0.98 |                  |      |               | 3,359,720  |                  |           | $ | 1.85 |      |      |  | 7,225,030  |            |           | $ | 3.83 |     
|                                   | Options exercised |                    |            | (51,058           | )       |                   | $    | 1.32             |      |               |            | (15,351          | )         |   |      | 2.72 |      |  |            |           |           |   |      |     |     
|                                   | Options forfeited |                    |            | (4,484,130        | )       |                   | $    | 4.76             |      |               |            | (4,466,546       | )         |   | $    | 6.03 |      |  |            | (1,835,896 | )         |   | $    | 5.93 |     
|                                   |                   |                    |            |                   |         |                   |      |                  |      |               |            |                  |           |   |      |      |      |  |            |            |           |   |      |     
|Balance at the end of period       |                   |                    | 10,433,186 |                   |         | $                 | 5.31 |                  |      |               | 14,725,922 |                  |           | $ | 5.20 |      |      |  | 15,848,099 |            |           | $ | 6.14 |     
|                                   |                   |                    |            |                   |         |                   |      |                  |      |               |            |                  |           |   |      |      |      |  |            |            |           |   |      |     

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, 2003:

Outstanding and Exercisable by Price
Range

as of 12/31/2003


|                |              |                     |  |                     |            |                |  |                  |     |                |  |   |      |  |  |  |           |  |  |   |      | 
|--------------- | ------------ | ------------------- |  | ------------------- | ---------- | -------------- |  | ---------------- | --- | -------------- |  | - | ---- |  |  |  | --------- |  |  | - | ---- | 
|                |              |                     |  |                    
|                |              | Options Outstanding |  | Options Exercisable
|                |              |                     |  |                    
|                |              |                     |  | Weighted Average    |            |                |  |                 
|                |              | Number              |  | Remaining           |            | Weighted       |  | Number           |     | Weighted      
|Range of        |              | Outstanding         |  | Contractual Life    |            | Average        |  | Exercisable      |     | Average       
|Exercise Prices |              | As of 12/31/2003    |  | (in Years)          |            | Exercise Price |  | As of 12/31/2003 |     | Exercise Price
|                |              |                     |  |                     |            |                |  |                  |     |               
|$               | 0.01  $2.12 |                     |  |                     | 2,019,893  |                |  |                  | 8.4 |                |  | $ | 1.61 |  |  |  | 612,616   |  |  | $ | 1.58 | 
|$               | 2.24  $2.72 |                     |  |                     | 2,408,868  |                |  |                  | 7.1 |                |  | $ | 2.71 |  |  |  | 1,223,224 |  |  | $ | 2.72 | 
|$               | 2.77  $7.98 |                     |  |                     | 1,457,374  |                |  |                  | 7.1 |                |  | $ | 6.32 |  |  |  | 935,356   |  |  | $ | 6.43 | 
|$               | 8.00  $8.00 |                     |  |                     | 4,481,439  |                |  |                  | 6.6 |                |  | $ | 8.00 |  |  |  | 3,835,234 |  |  | $ | 8.00 | 
|$               | 8.07  $9.44 |                     |  |                     | 65,612     |                |  |                  | 7.1 |                |  | $ | 8.31 |  |  |  | 40,561    |  |  | $ | 8.30 | 
|                |              |                     |  |                     |            |                |  |                  |     |                |  |   |      |  |  |  |           |  |  |   |      | 
|                |              |                     |  |                     | 10,433,186 |                |  |                  | 7.1 |                |  | $ | 5.31 |  |  |  | 6,646,991 |  |  | $ | 6.22 | 
|                |              |                     |  |                     |            |                |  |                  |     |                |  |   |      |  |  |  |           |  |  |   |      | 



|         |                                          
|-------- | -----------------------------------------
|Note 5  | Computation of Loss Per Common
    Share:

The calculation of basic and diluted loss per
common share for the years ended December 31, 2003, 2002
and 2001 is shown below (in thousands, except per share amounts):

|                                                         |  |                         |          |      |  |      |          |   |  |   |          |  
|-------------------------------------------------------- |  | ----------------------- | -------- | ---- |  | ---- | -------- | - |  | - | -------- | -
|                                                         |  |                        
|                                                         |  | Year Ended December 31,
|                                                         |  |                        
|                                                         |  | 2003                    |          | 2002 |  | 2001
|                                                         |  |                         |          |      |  |     
|Net loss                                                 |  | $                       | (100,739 | )    |  | $    | (161,867 | ) |  | $ | (290,315 | )
|Less: Dividends on Series B and C preferred
    shares   |  |                         | 15,869   |      |  |      | 18,724   |   |  |   | 17,005   |  
|                                                         |  |                         |          |      |  |      |          |   |  |   |          |  
|Net loss applicable to common stockholders               |  | $                       | (116,608 | )    |  | $    | (180,591 | ) |  | $ | (307,320 | )
|                                                         |  |                         |          |      |  |      |          |   |  |   |          |  
|Weighted average number of common shares
    outstanding |  |                         | 132,903  |      |  |      | 67,068   |   |  |   | 66,018   |  
|                                                         |  |                         |          |      |  |      |          |   |  |   |          |  
|Loss Per Common Share, Basic and diluted                 |  | $                       | (0.88    | )    |  | $    | (2.69    | ) |  | $ | (4.66    | )
|                                                         |  |                         |          |      |  |      |          |   |  |   |          |  

F-22



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##### Table of Contents



AMERICA ONLINE LATIN AMERICA


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 as of
December 31, 2003 and 2002 are set forth on the table below:

|                              |  |                    |             |      |  |  |             | 
|----------------------------- |  | ------------------ | ----------- | ---- |  |  | ----------- | 
|                              |  |                   
|                              |  | As of December 31,
|                              |  |                   
|                              |  | 2003               |             | 2002
|                              |  |                    |             |     
|Series B Preferred Stock      |  |                    | 115,244,559 |      |  |  | 126,876,099 | 
|Series C Preferred Stock      |  |                    | 79,518,702  |      |  |  | 111,413,994 | 
|AOL Warrant                   |  |                    | 16,541,250  |      |  |  | 16,541,250  | 
|AOLTW Senior Convertible Note |  |                    | 44,150,105  |      |  |  | 44,150,105  | 
|Stock Options                 |  |                    | 10,433,186  |      |  |  | 14,725,922  | 
|                              |  |                    |             |      |  |  |             | 
|                              |  |                    | 265,887,802 |      |  |  | 313,707,370 | 
|                              |  |                    |             |      |  |  |             | 



|         |                     
|-------- | --------------------
|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 of these factors were significant
factors impacting AOLAs business during the fiscal years
2003, 2002 and 2001 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. 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.



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

AOLA considers markets in which it has launched
its AOLA country and web-based 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 subscription fees to its interactive services
and from advertising and other revenues. Interactive services
consist primarily of the delivery of the AOLA country services
and web-based interactive 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

F-23



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##### Table of Contents



AMERICA ONLINE LATIN AMERICA


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

marketing the AOL-brand service in Puerto Rico in
December 2000. It subsequently launched its web-based
interactive services in Brazil and Argentina in the third
quarter of 2003, and in Puerto Rico in the first quarter of 2004.

For purposes of the segment presentation below,
amounts included in revenues under the corporate and other
segment represent amounts are related to the programming
services AOLA provides to America Online for its Latino content
area and to revenues for CompuServe Classic in countries where
the AOLA country services are not present. The CompuServe
Classic service was largely 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.

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 December 31,
|                      |               |                        
|                      |               | 2003                    |        | 2002 |        | 2001
|                      |               |                         |        |      |        |     
|Revenues Breakdown:   |               |                         |        |      |        |      |        |   |        |   |        |  
|                      | Subscriptions |                         |        |      |        |      |        |   |        |   |        |   |       
|                      |               | Brazil                  |        | $    | 22,883 |      |        | $ | 25,229 |   |        | $ | 17,853 | 
|                      |               | Mexico                  |        |      | 21,152 |      |        |   | 24,906 |   |        |   | 19,579 | 
|                      |               | Argentina               |        |      | 1,675  |      |        |   | 1,856  |   |        |   | 7,389  | 
|                      |               | Puerto Rico             |        |      | 13,595 |      |        |   | 10,855 |   |        |   | 4,724  | 
|                      |               | Corporate and other     |        |      | 110    |      |        |   | 152    |   |        |   | 373    | 
|                      |               |                         |        |      |        |      |        |   |        |   |        |  
|                      |               |                         | 59,415 |      |        |      | 62,998 |   |        |   | 49,918 |  
|Advertising and other |               |                         |        |      |        |      |        |   |        |   |        |  
|                      |               | Brazil                  |        |      | 2,384  |      |        |   | 5,526  |   |        |   | 8,870  | 
|                      |               | Mexico                  |        |      | 1,574  |      |        |   | 2,258  |   |        |   | 5,557  | 
|                      |               | Argentina               |        |      | 344    |      |        |   | 445    |   |        |   | 1,766  | 
|                      |               | Puerto Rico             |        |      | 593    |      |        |   | 519    |   |        |   | 121    | 
|                      |               | Corporate and other     |        |      | 864    |      |        |   | 361    |   |        |   | 211    | 
|                      |               |                         |        |      |        |      |        |   |        |   |        |  
|                      |               |                         | 5,759  |      |        |      | 9,109  |   |        |   | 16,525 |  
|Total                 |               |                         |        |      |        |      |        |   |        |   |        |  
|                      |               | Brazil                  |        |      | 25,267 |      |        |   | 30,755 |   |        |   | 26,723 | 
|                      |               | Mexico                  |        |      | 22,726 |      |        |   | 27,164 |   |        |   | 25,136 | 
|                      |               | Argentina               |        |      | 2,019  |      |        |   | 2,301  |   |        |   | 9,155  | 
|                      |               | Puerto Rico             |        |      | 14,188 |      |        |   | 11,374 |   |        |   | 4,845  | 
|                      |               | Corporate and other     |        |      | 974    |      |        |   | 513    |   |        |   | 584    | 
|                      |               |                         |        |      |        |      |        |   |        |   |        |  
|                      |               | $                       | 65,174 |      |        | $    | 72,107 |   |        | $ | 66,443 |  
|                      |               |                         |        |      |        |      |        |   |        |   |        |  

F-24



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##### Table of Contents



AMERICA ONLINE LATIN AMERICA


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                              |  |                         |         |      |  |      |          |   |  |   |          |  
|----------------------------- |  | ----------------------- | ------- | ---- |  | ---- | -------- | - |  | - | -------- | -
|                              |  |                        
|                              |  | Year Ended December 31,
|                              |  |                        
|                              |  | 2003                    |         | 2002 |  | 2001
|                              |  |                         |         |      |  |     
|Income (loss) from operations |  |                         |         |      |  |      |          |   |  |   |          |  
|Brazil                        |  | $                       | (60,458 | )    |  | $    | (95,447  | ) |  | $ | (147,731 | )
|Mexico                        |  |                         | (7,649  | )    |  |      | (37,268  | ) |  |   | (71,550  | )
|Argentina                     |  |                         | (1,683  | )    |  |      | (3,141   | ) |  |   | (39,663  | )
|Puerto Rico                   |  |                         | 2,495   |      |  |      | 956      |   |  |   | (7,455   | )
|Corporate and other           |  |                         | (16,366 | )    |  |      | (21,729  | ) |  |   | (28,669  | )
|                              |  |                         |         |      |  |      |          |   |  |   |          |  
|                              |  | $                       | (83,661 | )    |  | $    | (156,629 | ) |  | $ | (295,068 | )
|                              |  |                         |         |      |  |      |          |   |  |   |          |  

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,
|                    |  | 2003         |        | 2002        
|                    |  |              |        |             
|Total assets        |  |              |        |              |  |   |         | 
|Brazil              |  | $            | 10,069 |              |  | $ | 6,818   | 
|Mexico              |  |              | 3,575  |              |  |   | 7,035   | 
|Argentina           |  |              | 4,421  |              |  |   | 3,959   | 
|Puerto Rico         |  |              | 569    |              |  |   | 605     | 
|Corporate and other |  |              | 37,105 |              |  |   | 81,857  | 
|                    |  |              |        |              |  |   |         | 
|                    |  | $            | 55,739 |              |  | $ | 100,274 | 
|                    |  |              |        |              |  |   |         | 
|Long-lived assets   |  |              |        |              |  |   |         | 
|Brazil              |  | $            | 2,381  |              |  | $ | 2,528   | 
|Mexico              |  |              | 593    |              |  |   | 1,304   | 
|Argentina           |  |              | 282    |              |  |   | 304     | 
|Puerto Rico         |  |              | 232    |              |  |   | 254     | 
|Corporate and other |  |              | 1,283  |              |  |   | 2,593   | 
|                    |  |              |        |              |  |   |         | 
|                    |  | $            | 4,771  |              |  | $ | 6,983   | 
|                    |  |              |        |              |  |   |         | 

Depreciation and amortization expense, excluding
amortization related to Banco Itaú under the Companys
strategic marketing agreement, amounted to $3.7 million for
the year ended December 31,

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##### Table of Contents



AMERICA ONLINE LATIN AMERICA


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

2003, as compared to $5.0 million for the
year ended December 31, 2002 and to $4.9 million in
the year ended December 31, 2001.

|                              |  |                         |       |      |  |      |       |  |  |   |       | 
|----------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                              |  |                        
|                              |  | Year Ended December 31,
|                              |  |                        
|                              |  | 2003                    |       | 2002 |  | 2001
|                              |  |                         |       |      |  |     
|Depreciation and amortization |  |                         |       |      |  |      |       |  |  |   |       | 
|Brazil                        |  | $                       | 1,347 |      |  | $    | 2,580 |  |  | $ | 1,598 | 
|Mexico                        |  |                         | 675   |      |  |      | 1,222 |  |  |   | 1,090 | 
|Argentina                     |  |                         | 156   |      |  |      | 352   |  |  |   | 451   | 
|Puerto Rico                   |  |                         | 207   |      |  |      | 80    |  |  |   | 124   | 
|Corporate and other           |  |                         | 1,309 |      |  |      | 794   |  |  |   | 1,657 | 
|                              |  |                         |       |      |  |      |       |  |  |   |       | 
|                              |  | $                       | 3,694 |      |  | $    | 5,028 |  |  | $ | 4,920 | 
|                              |  |                         |       |      |  |      |       |  |  |   |       | 
|Capital spending              |  |                         |       |      |  |      |       |  |  |   |       | 
|Brazil                        |  | $                       | 998   |      |  | $    | 1,059 |  |  | $ | 1,955 | 
|Mexico                        |  |                         | 259   |      |  |      | 249   |  |  |   | 217   | 
|Argentina                     |  |                         | 136   |      |  |      | 7     |  |  |   | 193   | 
|Puerto Rico                   |  |                         | 157   |      |  |      | 133   |  |  |   | 61    | 
|Corporate and other           |  |                         | 9     |      |  |      | 578   |  |  |   | 3,572 | 
|                              |  |                         |       |      |  |      |       |  |  |   |       | 
|                              |  | $                       | 1,559 |      |  | $    | 2,026 |  |  | $ | 5,998 | 
|                              |  |                         |       |      |  |      |       |  |  |   |       | 



|         |                                                         
|-------- | --------------------------------------------------------
|Note 7  | Property and Equipment and Product Development
    Costs



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

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

|                                               |                                                 |                                |       |              |  |      |        |         |       |   |        |        |       | 
|---------------------------------------------- | ----------------------------------------------- | ------------------------------ | ----- | ------------ |  | ---- | ------ | ------- | ----- | - | ------ | ------ | ----- | 
|                                               |                                                 |                                |       |             
|                                               |                                                 |                                |       | December 31,
|                                               |                                                 | Useful Life                    |       |             
|                                               |                                                 | (years)                        |       | 2003         |  | 2002
|                                               |                                                 |                                |       |              |  |     
|Leasehold and network improvements             |                                                 |                                | 4     |              |  | $    | 3,415  |         |       | $ | 3,771  |       
|Furniture and fixtures                         |                                                 |                                | 5     |              |  |      | 2,707  |         |       |   | 2,595  |       
|Equipment and automobiles                      |                                                 |                                | 5     |              |  |      | 1,590  |         |       |   | 1,213  |       
|Computer equipment and internal software       |                                                 |                                | 2 - 5 |              |  |      | 9,183  |         |       |   | 7,598  |       
|                                               |                                                 |                                |       |              |  |      |        |         |       |   |        |       
|                                               |                                                 |                                |       |              |  |      | 16,895 |         |       |   | 15,177 |       
|                                               | Less: accumulated depreciation and amortization |                                |       |              |  |      |        | (12,124 | )     |   |        | (8,194 | )    
|                                               |                                                 |                                |       |              |  |      |        |         |       |   |        |       
|                                               |                                                 | Property and equipment, net    |       |              |  |      |        | $       | 4,771 |   |        | $      | 6,983 | 
|                                               |                                                 |                                |       |              |  |      |        |         |       |   |        |       
|Capitalized development and localization costs |                                                 |                                |       |              |  | $    | 1,934  |         |       | $ | 2,013  |       
|                                               | Less: accumulated depreciation and amortization |                                |       |              |  |      |        | (1,884  | )     |   |        | (1,728 | )    
|                                               |                                                 |                                |       |              |  |      |        |         |       |   |        |       
|                                               |                                                 | Product development costs, net |       |              |  |      |        | $       | 50    |   |        | $      | 285   | 
|                                               |                                                 |                                |       |              |  |      |        |         |       |   |        |       



|         |                                           
|-------- | ------------------------------------------
|Note 8  | Other Accrued Expenses and
    Liabilities

At December 31, 2003 and 2002, the
components of accrued expenses and liabilities were as follows
(in thousands):

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##### Table of Contents



AMERICA ONLINE LATIN AMERICA


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                          |  |              |       |      |  |   |       | 
|------------------------- |  | ------------ | ----- | ---- |  | - | ----- | 
|                          |  |             
|                          |  | December 31,
|                          |  |             
|                          |  | 2003         |       | 2002
|                          |  |              |       |     
|Telecommunications        |  | $            | 3,891 |      |  | $ | 2,796 | 
|Marketing and Advertising |  |              | 3,202 |      |  |   | 2,380 | 
|Member Services           |  |              | 1,104 |      |  |   | 818   | 
|Other                     |  |              | 1,475 |      |  |   | 1,375 | 
|                          |  |              |       |      |  |   |       | 
|Totals                    |  | $            | 9,672 |      |  | $ | 7,369 | 
|                          |  |              |       |      |  |   |       | 



|         |             
|-------- | ------------
|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:

|              |  |                         |          |      |  |      |          |   |  |   |          |  
|------------- |  | ----------------------- | -------- | ---- |  | ---- | -------- | - |  | - | -------- | -
|              |  |                        
|              |  | Year Ended December 31,
|              |  |                        
|              |  | 2003                    |          | 2002 |  | 2001
|              |  |                         |          |      |  |     
|              |  |                        
|              |  | (in thousands)         
|United States |  | $                       | (32,469  | )    |  | $    | (22,756  | ) |  | $ | (36,407  | )
|Foreign       |  |                         | (68,266  | )    |  |      | (139,036 | ) |  |   | (253,908 | )
|              |  |                         |          |      |  |      |          |   |  |   |          |  
|              |  | $                       | (100,735 | )    |  | $    | (161,792 | ) |  | $ | (290,315 | )
|              |  |                         |          |      |  |      |          |   |  |   |          |  

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

|         |         |                         |   |      |  |      |    |    |  |   |   |   | 
|-------- | ------- | ----------------------- | - | ---- |  | ---- | -- | -- |  | - | - | - | 
|         |         |                        
|         |         | Year Ended December 31,
|         |         |                        
|         |         | 2003                    |   | 2002 |  | 2001
|         |         |                         |   |      |  |     
|         |         |                        
|         |         | (in thousands)         
|Current: |         | $                       |  |      |  | $    |   |    |  | $ |  |  
|         | Federal |                         |   |     |  |      |    |   |  |   |   |  | 
|         | Foreign |                         |   | 4    |  |      |    | 75 |  |   |   |  | 
|         | State   |                         |   |     |  |      |    |   |  |   |   |  | 
|         |         |                         |   |      |  |      |    |    |  |   |   |  
|         |         |                         | 4 |      |  |      | 75 |    |  |   |  |  
|Deferred |         |                         |  |      |  |      |   |    |  |   |  |  
|         |         |                         |   |      |  |      |    |    |  |   |   |  
|         |         | $                       | 4 |      |  | $    | 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 $742.0 million at December 31,
2003 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; $166.4 million in 2022 and $104.3 million in
2023.

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 $474.1 million at December 31,
2003, which are being carried forward and are available to
reduce future

F-27



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##### Table of Contents



AMERICA ONLINE LATIN AMERICA


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

taxable income of certain foreign tax
jurisdictions. At December 31, 2003, AOLAs net
operating loss carryforwards (by operating country) expire as
follows (in thousands):

|                        |  |           |        |             |  |       |       |        |  |        |        |       |  |   |         |  |  |   |         |  |  |   |         | 
|----------------------- |  | --------- | ------ | ----------- |  | ----- | ----- | ------ |  | ------ | ------ | ----- |  | - | ------- |  |  | - | ------- |  |  | - | ------- | 
|Year Ended December 31, |  | Argentina |        | Puerto Rico |  | Spain |       | Mexico |  | Brazil |        | Total
|                        |  |           |        |             |  |       |       |        |  |        |        |      
|2005                    |  | $         | 248    |             |  | $     |      |        |  | $      |       |       |  | $ |        |  |  | $ |        |  |  | $ | 248     | 
|2006                    |  |           | 17,786 |             |  |       |      |        |  |        |       |       |  |   |        |  |  |   |        |  |  |   | 17,786  | 
|2007                    |  |           | 7,507  |             |  |       | 73    |        |  |        |       |       |  |   |        |  |  |   |        |  |  |   | 7,580   | 
|2008                    |  |           | 1,903  |             |  |       | 3,949 |        |  |        |       |       |  |   |        |  |  |   |        |  |  |   | 5,852   | 
|2009                    |  |           |       |             |  |       | 2,974 |        |  |        | 1,427  |       |  |   |        |  |  |   |        |  |  |   | 4,401   | 
|2010                    |  |           |       |             |  |       | 2,724 |        |  |        | 39,548 |       |  |   | 47,545  |  |  |   |        |  |  |   | 89,817  | 
|2011                    |  |           |       |             |  |       |      |        |  |        |       |       |  |   | 42,191  |  |  |   |        |  |  |   | 42,191  | 
|2012                    |  |           |       |             |  |       |      |        |  |        | 49     |       |  |   | 30,473  |  |  |   |        |  |  |   | 30,522  | 
|2013                    |  |           |       |             |  |       |      |        |  |        | 256    |       |  |   | 8,921   |  |  |   |        |  |  |   | 9,177   | 
|Indefinitely            |  |           |       |             |  |       |      |        |  |        |       |       |  |   |        |  |  |   | 266,542 |  |  |   | 266,542 | 
|                        |  |           |        |             |  |       |       |        |  |        |        |       |  |   |         |  |  |   |         |  |  |   |         | 
|                        |  | $         | 27,444 |             |  | $     | 9,720 |        |  | $      | 41,280 |       |  | $ | 129,130 |  |  | $ | 266,542 |  |  | $ | 474,116 | 
|                        |  |           |        |             |  |       |       |        |  |        |        |       |  |   |         |  |  |   |         |  |  |   |         | 

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, 2003
and 2002 consisted of the following (in thousands):

|                                                          |                                  |                |          |         |   |   |          |         | 
|--------------------------------------------------------- | -------------------------------- | -------------- | -------- | ------- | - | - | -------- | ------- | 
|                                                          |                                  |               
|                                                          |                                  | December 31,  
|                                                          |                                  |               
|                                                          |                                  | 2003           |          | 2002   
|                                                          |                                  |                |          |        
|                                                          |                                  |               
|                                                          |                                  | (in thousands)
|Deferred tax assets, net of deferred tax
    liabilities: |                                  |                |          |         |   |   |          |        
|                                                          | Accounts receivable allowances   |                | $        | 137     |   |   | $        | 240     | 
|                                                          | Depreciation and amortization    |                |          | 1,900   |   |   |          | 2,671   | 
|                                                          | Loss on securities               |                |          | 1,426   |   |   |          | 1,423   | 
|                                                          | Deferred revenues                |                |          | (96     | ) |   |          | 108     | 
|                                                          | Accrued expenses                 |                |          | 2,674   |   |   |          | 4,293   | 
|                                                          | Stock based compensation         |                |          | 157     |   |   |          | 264     | 
|                                                          | Net operating loss carryforwards |                |          | 314,027 |   |   |          | 269,328 | 
|                                                          |                                  |                |          |         |   |   |          |        
|                                                          |                                  |                | 320,225  |         |   |   | 278,327  |        
|Valuation allowance                                       |                                  |                | (320,225 | )       |   |   | (278,327 | )      
|                                                          |                                  |                |          |         |   |   |          |        
|                                                          |                                  | $              |         |         |   | $ |         |        
|                                                          |                                  |                |          |         |   |   |          |        

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 $320.0 million
and $278.3 million valuation allowance at December 31,
2003 and 2002, 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
$41.9 million during the year ended December 31, 2003;
approximately $55.0 million during the year ended
December 31, 2002 and by approximately $140.2 million
during the year ended December 31, 2001. AOLAs
operations in Brazil, Mexico and Argentina generated deferred
tax assets of approximately $35 million from foreign net
operating losses relating to periods prior to the August 7,
2000 reorganization. The foreign deferred tax

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##### Table of Contents



AMERICA ONLINE LATIN AMERICA


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 percentages):

|                                                                                                  |  |                         |        |      |  |      |        |    |  |  |        |   
|------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | -- |  |  | ------ | --
|                                                                                                  |  |                        
|                                                                                                  |  | Year Ended December 31,
|                                                                                                  |  |                        
|                                                                                                  |  | 2003                    |        | 2002 |  | 2001
|                                                                                                  |  |                         |        |      |  |     
|Federal statutory taxes:                                                                          |  |                         | (34.00 | )%   |  |      | (34.00 | )% |  |  | (34.00 | )%
|State income taxes, net of federal tax benefit                                                    |  |                         | (3.63  | )    |  |      | (3.63  | )  |  |  | (3.63  | ) 
|Non-deductible items                                                                              |  |                         | 0.16   |      |  |      | 0.41   |    |  |  | 0.14   |   
|Dividends received deduction                                                                      |  |                         | (0.24  | )    |  |      | (0.10  | )  |  |  | (0.28  | ) 
|Change in valuation allowance                                                                     |  |                         | 41.59  |      |  |      | 33.99  |    |  |  | 48.31  |   
|Income nontaxable in U.S.                                                                         |  |                         |       |      |  |      |       |    |  |  | (8.38  | ) 
|Income generated prior to the August 7, 2000
    reorganization and taxable to predecessor parent |  |                         |       |      |  |      |       |    |  |  | (0.31  | ) 
|Other                                                                                             |  |                         | (3.88  | )    |  |      | 3.33   |    |  |  | (1.85  | ) 
|                                                                                                  |  |                         |        |      |  |      |        |    |  |  |        |   
|                                                                                                  |  |                         | (0.00  | )%   |  |      | (0.00  | )% |  |  | (0.00  | )%
|                                                                                                  |  |                         |        |      |  |      |        |    |  |  |        |   



|          |                              
|--------- | -----------------------------
|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, 2003, 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
|                                |  |                |       |         |  |      
|                                |  |               
|                                |  | (In thousands)
|2004                            |  | $              | 2,243 |         |  | $     | 7,796  |  |  | $ | 10,039 | 
|2005                            |  |                | 2,584 |         |  |       | 8,433  |  |  |   | 11,017 | 
|2006                            |  |                | 1,767 |         |  |       | 10,419 |  |  |   | 12,186 | 
|2007                            |  |                | 419   |         |  |       |       |  |  |   | 419    | 
|2008                            |  |                | 124   |         |  |       |       |  |  |   | 124    | 
|Thereafter                      |  |                | 10    |         |  |       |       |  |  |   | 10     | 
|                                |  |                |       |         |  |       |        |  |  |   |        | 
|                                |  | $              | 7,147 |         |  | $     | 26,648 |  |  | $ | 33,795 | 
|                                |  |                |       |         |  |       |        |  |  |   |        | 

For the year ended December 31, 2003, rent
expense under operating leases totaled approximately
$19.1 million. For the year ended December 31, 2002,
rent expense under operating leases totaled approximately
$22.3 million (including a one-time 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).

F-29



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##### Table of Contents



AMERICA ONLINE LATIN AMERICA


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                  
| | -----------------
| | Legal Proceedings

From time to time, AOLA may be involved in
litigation relating to claims arising out of its operations in
the normal course of business. AOLA is not currently a party to
any legal proceedings, the adverse outcome of which,
individually or in the aggregate, is expected to have a material
adverse effect on AOLAs financial position or results of
operations.



|          |                      
|--------- | ---------------------
|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 in the year ended December 31, 2003 was $174,000,
as compared 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

In January 2003, AOLA entered into an agreement
with McDonalds in Brazil to market its interactive
services via kiosks in hundreds of McDonalds restaurants
in Brazil. As part of the agreement, AOLA paid McDonalds
an initial fee of approximately $2.1 million and is
required to pay an annual fee over the five-year term of the
agreement, which together with the initial fee will in the
aggregate total as much as $7.0 million. In addition, AOLA
is also required to pay McDonalds a fee for each new
member who becomes a paying member of the AOLA country service
in Brazil through this agreement. AOLA launched the project in a
limited number of restaurants in October 2003, but the
implementation of this agreement has been subject to a number of
delays and still has not been fully implemented.

On March 24, 2004, AOLA modified its
agreement with McDonalds pursuant to which, among other
things, McDonalds is required to hire, train and deploy in
the restaurant kiosks, for a period of one year, at its cost,
300 promoters who will be exclusively dedicated to the project.
AOLA also has the right for AOL Brazil to be promoted, at no
cost to it, in two of McDonalds national advertising
campaigns in 2004 and two additional such campaigns in 2005. As
part of the restructured agreement, AOLA is no longer required
to pay a maintenance fee to McDonalds relating to the
first year of the contract (estimated to have been
$0.9 million), and McDonalds is no longer required to
pay AOLA penalties for its failure in the first year of the
contract to timely establish kiosks according to the
implementation schedule included in the initial contract
(estimated to have been up to $0.8 million). As part of the
restructured agreement, McDonalds is required to
establish, by August 31, 2004, functioning kiosks in 550 of
its restaurants. To the extent that McDonalds does not
meet this target date, they will be obligated to refund to AOLA
a portion of its $2.1 million initial investment. The
initiative is presently operating in only a limited number of
restaurants and AOLA hopes to achieve full implementation by the
first quarter of 2005.

F-30



---



##### Table of Contents



AMERICA ONLINE LATIN AMERICA


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|          |                                          
|--------- | -----------------------------------------
|Note 13  | Quarterly Financial Data
    (Unaudited):

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

|                                               |  |               |         |          |  |               |         |              |  |       |         |   |  |   |         |   |  |   |          |  
|---------------------------------------------- |  | ------------- | ------- | -------- |  | ------------- | ------- | ------------ |  | ----- | ------- | - |  | - | ------- | - |  | - | -------- | -
|                                               |  |              
|                                               |  | Quarter Ended
|                                               |  |              
|                                               |  | March 31,     |         | June 30, |  | September 30, |         | December 31, |  | TOTAL
|                                               |  |               |         |          |  |               |         |              |  |      
|Calendar Year 2003                             |  |               |         |          |  |               |         |              |  |       |         |   |  |   |         |   |  |   |          |  
|Revenues                                       |  | $             | 16,295  |          |  | $             | 17,685  |              |  | $     | 16,280  |   |  | $ | 14,914  |   |  | $ | 65,174   |  
|Cost and expenses                              |  |               | 40,073  |          |  |               | 39,207  |              |  |       | 35,618  |   |  |   | 33,937  |   |  |   | 148,835  |  
|                                               |  |               |         |          |  |               |         |              |  |       |         |   |  |   |         |   |  |   |          |  
|Loss From Operations                           |  |               | (23,778 | )        |  |               | (21,522 | )            |  |       | (19,338 | ) |  |   | (19,023 | ) |  |   | (83,661  | )
|Other income/(expense), net                    |  |               | (4,421  | )        |  |               | (4,477  | )            |  |       | (4,825  | ) |  |   | (3,351  | ) |  |   | (17,074  | )
|                                               |  |               |         |          |  |               |         |              |  |       |         |   |  |   |         |   |  |   |          |  
|Loss Before Income Taxes                       |  |               | (28,199 | )        |  |               | (25,999 | )            |  |       | (24,163 | ) |  |   | (22,374 | ) |  |   | (100,735 | )
|Income taxes                                   |  |               | (27     | )        |  |               | 29      |              |  |       | (3      | ) |  |   | 5       |   |  |   | 4        |  
|                                               |  |               |         |          |  |               |         |              |  |       |         |   |  |   |         |   |  |   |          |  
|Net Loss                                       |  |               | (28,172 | )        |  |               | (26,028 | )            |  |       | (24,160 | ) |  |   | (22,379 | ) |  |   | (100,739 | )
|Dividends on Series B and C preferred shares   |  |               | 3,033   |          |  |               | 3,882   |              |  |       | 4,435   |   |  |   | 4,519   |   |  |   | 15,869   |  
|                                               |  |               |         |          |  |               |         |              |  |       |         |   |  |   |         |   |  |   |          |  
|Net Loss Applicable to Common
    Stockholders |  | $             | (31,205 | )        |  | $             | (29,910 | )            |  | $     | (28,595 | ) |  | $ | (26,898 | ) |  | $ | (116,608 | )
|                                               |  |               |         |          |  |               |         |              |  |       |         |   |  |   |         |   |  |   |          |  
|Basic and diluted loss per common share        |  | $             | (0.25   | )        |  | $             | (0.22   | )            |  | $     | (0.21   | ) |  | $ | (0.20   | ) |  | $ | (0.88    | )
|                                               |  |               |         |          |  |               |         |              |  |       |         |   |  |   |         |   |  |   |          |  
|Weighted average common shares outstanding     |  |               | 125,304 |          |  |               | 135,135 |              |  |       | 135,136 |   |  |   | 135,158 |   |  |   | 132,903  |  
|                                               |  |               |         |          |  |               |         |              |  |       |         |   |  |   |         |   |  |   |          |  
|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    | )
|                                               |  |               |         |          |  |               |         |              |  |       |         |   |  |   |         |   |  |   |          |  
|Weighted average common shares outstanding     |  |               | 67,060  |          |  |               | 67,070  |              |  |       | 67,070  |   |  |   | 67,070  |   |  |   | 67,068   |  
|                                               |  |               |         |          |  |               |         |              |  |       |         |   |  |   |         |   |  |   |          |  

F-31