UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K/A

(Amendment No. 1)

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended March 31, 2005
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-22520

Terremark Worldwide, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	84-0873124
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)

2601 S. Bayshore Drive, Miami, Florida 33133

(Address of Principal Executive Offices, Including Zip Code)

Registrant’s telephone number, including area code:

(305) 856-3200

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

Common Stock, par value $0.001 per share	American Stock Exchange
(Title of Class)	(Name of Exchange on Which Registered)

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

NONE

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

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

      The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant on, September 30, 2004, was approximately $155,145,610, based on the closing market price of the registrant’s common stock ($0.64 as reported by the American Stock Exchange on such date).

      The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of June 29, 2005 was 42,725,138. This number reflects a one-for-ten reverse stock split the registrant implemented, effective as of May 16, 2005.

TABLE OF CONTENTS

PART I 10-K/A EXPLANATORY NOTE
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
	ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
	ITEM 9A. CONTROLS AND PROCEDURES.
	ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
PART IV
	ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
SIGNATURES
REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consent of PricewaterhouseCoopers LLP
Section 302 Chief Executive Officer Certification
Section 302 Chief Financial Officer Certification
Section 906 Chief Executive Officer Certification
Section 906 Chief Financial Officer Certification

PART I

10-K/ A EXPLANATORY NOTE

      Terremark Worldwide, Inc. is filing this Amendment No. 1 to its Annual Report on Form 10-K for the fiscal year ended March 31, 2005, which was originally filed with the Securities and Exchange Commission on June 29, 2005 (the “Original Filing”) to:

•  amend and restate Item 9A to include Management’s Report on Internal Control Over Financial Reporting;

•  amend and restate a risk factor as a result of the revisions discussed above;

•  include a Report of Independent Registered Public Accounting Firm relating to our internal control over financial reporting;

•  include a Consent of Independent Registered Public Accounting Firm required as a result of the revisions discussed above; and

•  update principal accountant fees and services.

      As a result of these amendments, the certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, filed as exhibits to the Original Filing, have been re-executed and re-filed as of the date of this Form 10-K/ A.

      Except for the amendments described above, this Form 10-K/ A does not modify or update other disclosures in, or exhibits to, the Original Filing.

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

      This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 based on our current expectations, assumptions, and estimates about us and our industry. These forward-looking statements involve risks and uncertainties. Words such as “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “will,” “may,” and other similar expressions identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. All statements other than statements of historical facts, including, among others, statements regarding our future financial position, business strategy, projected levels of growth, projected costs and projected financing needs, are forward-looking statements. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of several important factors including, without limitation, a history of losses, competitive factors, uncertainties inherent in government contracting, concentration of business with a small number of clients, the ability to service debt, substantial leverage, material weaknesses in our internal controls and our disclosure controls, energy costs, the interest rate environment, one-time events and other factors more fully described in “Risk Factors” and elsewhere in this report. The forward-looking statements made in this report relate only to events as of the date on which the statements are made. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely upon forward-looking statements as predictions of future events. Except as required by applicable law, including the securities laws of the United States, and the rules and regulations of the Securities and Exchange Commission, we do not plan and assume no obligation to publicly update or revise any forward-looking statements contained herein after the date of this report, whether as a result of any new information, future events or otherwise.

Critical Accounting Policies and Estimates

      Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of

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contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

      Management believes the following significant accounting policies, among others, affect its judgments and estimates used in the preparation of its consolidated financial statements:

•  revenue recognition and allowance for bad debt;

•  derivatives;

•  accounting for income taxes;

•  impairment of long-lived assets;

•  stock-based compensation; and

•  goodwill.

Revenue Recognition and Allowance for Bad Debts

      Data center revenues consist of monthly recurring fees for colocation, exchange point, and managed and professional services fees. It also includes monthly rental income for unimproved space in our Miami facility. Revenues from colocation and exchange point services, as well as rental income for unimproved space, are recognized ratably over the term of the contract. Installation fees are deferred and recognized ratably over the term of the related contract. Managed and professional services fees are recognized in the period in which the services are provided.

      From time to time, we enter into outright sales or sales-type lease contracts for technology infrastructure build-outs that include procurement, installation and configuration of specialized equipment. Due to the typically short-term nature of these types of services, we record revenues under the completed contract method, whereby costs and related amounts are deferred in the balance sheet until services are delivered and accepted by the customer. Contract costs deferred are costs incurred for assets, such as costs for the purchase of materials and production equipment, under fixed-price contracts. For these types of services, labor and other general and administrative costs are not significant and are included as period charges.

      Pursuant to an outright sale contract, all rights and title to the equipment and infrastructure are purchased. In connection with an outright sale, we recognize the sale amount as revenue and the cost basis of the equipment and infrastructure is charged to cost of infrastructure build-outs.

      Lease contracts qualifying for capital lease treatment are accounted for as sales-type leases. For sales-type lease transactions, we recognize as revenue the net present value of the future minimum lease payments. The cost basis of the equipment and infrastructure is charged to cost of infrastructure build-outs. During the life of the lease, we recognize as other income in each respective period, that portion of each periodic lease payment deemed to be attributable to interest income. The balance of each periodic lease payment, representing principal repayment, is recognized as a reduction of capital lease receivable.

      Revenue is recognized when there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection of the receivable is reasonably assured. We assess collection based on a number of factors, including transaction history with the customer and the credit-worthiness of the customer. We do not request collateral from customers. If we determine that collection is not reasonably assured, we defer the fee and recognize revenue at the time collection becomes reasonably assured, which is generally upon receipt of cash. We account for data center revenues in accordance with Emerging Issues Task Force Issue No. 00-21 “Revenue Arrangements with Multiple Deliverables” which provides guidance on separating multiple element revenue arrangements into separate units of accounting. As of March 31, 2005 and 2004, our accounts

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receivable amounted to $4,388,889 and $3,577,144, respectively, and were net of allowance for doubtful accounts of approximately $200,000 each year.

      Revenues from construction contracts are recognized on the percentage-of-completion method, measured by the percentage of costs incurred to date to total estimated costs for each contract. This method is used because management considers costs incurred to be the best measure of progress on these contracts. The duration of a construction contract generally exceeds one year. Billings in excess of costs and estimated earnings on uncompleted contracts are classified as other liabilities and represent billings in excess of revenues recognized. Construction contract expense costs include all direct material and labor costs and indirect costs related to contract performance such as indirect labor, supplies, tools, repairs, bad debt and depreciation. Provisions for estimated losses on uncompleted contracts are made in the period in which losses are determined. Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income and are recognized in the period in which the revisions can be reasonably estimated. Accordingly, it is possible that our current estimates relating to completion cost and profitability of our uncompleted contracts will vary from actual results. Excluding depreciation, profit margins (revenue from construction contract and fees less construction contract expenses) on construction contracts for the years ended March 31, 2005, 2004 and 2003 were $520,154, $261,340 and $692,576, respectively.

      We analyze current economic news and trends, historical bad debts, customer concentrations, customer credit-worthiness and changes in customer payment terms when evaluating revenue recognition and the adequacy of our allowance for bad debts.

Derivatives

      We do not hold or issue derivative instruments for trading purposes. However, our 9% senior convertible notes due June 15, 2009 contain embedded derivatives that require separate valuation from the notes. We recognize these derivatives as liabilities on our balance sheet and measure them at their estimated fair value, and recognize changes in their estimated fair value in earnings in the period of change. We estimated that the embedded derivatives had an initial estimated fair value of approximately $35,480,000 and as of March 31, 2005, an estimated fair value of approximately $20,116,618. The embedded derivatives derive their value primarily based on changes in the price and volatility of our common stock. The closing price of our common stock decreased to $6.50 as of March 31, 2005 from $9.30 per share as of the initial valuation date. As a result, during the year ended March 31, 2005, we recognized a gain of $15.3 million due to the change in estimated fair value of the embedded derivatives.

      With the assistance of a third party we estimate the fair value of our embedded derivatives using available market information and appropriate valuation methodologies. These embedded derivatives derive their value primarily based on changes in the price and volatility of our common stock. Over the life of the notes, given the historical volatility of our common stock, changes in the estimated fair value of the embedded derivatives are expected to have a material effect on our results of operations. Furthermore, we have estimated the fair value of these embedded derivatives using a theoretical model based on the historical volatility of our common stock of 72% as of March 31, 2005. If an active trading market develops for the notes or we are able to find comparable market data, we may in the future be able to use actual market data to adjust the estimated fair value of these embedded derivatives. Such adjustment could be significant and would be accounted for prospectively.

      On December 31, 2004, we paid $100,000 to enter into a rate cap protection agreement, a derivative hedge against increases in interest rates. The agreement caps interest rates on the $49 million mortgage payable for the four-year period for which the rate cap protection is in effect. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is recorded in accumulated other comprehensive loss, a separate component of stockholders’ equity (deficit), and reclassified into earnings in the period during which the hedge transaction affects earnings. The portion of the hedge which is not effective is immediately reflected in other income and expenses. The Management will assess, at least quarterly, whether the derivative item is effective in offsetting the changes in

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fair value or cash flows of the hedged transaction. Any change in fair value resulting from ineffectiveness will be recognized in current period earnings. See “Quantitative and Qualitative Disclosures About Market Risk.”

Accounting for Income Taxes

      Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce tax assets to the amounts expected to be realized.

      We currently have provided for a full valuation allowance against our net deferred tax assets. Based on the available objective evidence, management does not believe it is more likely than not that the net deferred tax assets will be realizable in the future. Should we determine that we would be able to realize our deferred tax assets in the foreseeable future, an adjustment to the valuation allowance would benefit net income in the period in which such determination is made.

      Our federal and state net operating loss carryforwards, amounting to approximately $171.3 million, begin to expire in 2011. Utilization of the net operating losses generated prior to the AmTec merger may be limited by the Internal Revenue Code. Should we determine that we would be able to realize our deferred tax assets in the foreseeable future, an adjustment to the deferred tax assets would increase income in the period such determination is made.

Impairment of Long-Lived Assets

      Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Such events and circumstances include, but are not limited to, prolonged industry downturns, significant decline in our market value and significant reductions in our projected cash flows. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to estimated undiscounted future net cash flows expected to be generated by the asset. Significant judgments and assumptions are required in the forecast of future operating results used in the preparation of the estimated future cash flows, including long-term forecasts of the number of additional customer contracts, profit margins, terminal growth rates and discounted rates. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.

      As of March 31, 2005 and 2004, our long-lived assets, including property and equipment, net and identifiable intangible assets, totaled $133.4 million and $63.9 million, respectively. For the year ended 2003, we recognized impairment charges amounting to approximately $4.0 million.

Stock-based compensation

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

      As explained under the New Accounting Pronouncement Section of this document, in December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment.” SFAS No. 123(R) revises SFAS No. 123, “Accounting for Stock-Based Compensation” which is effective after April 1, 2006 in Terremark’s case. Management is currently considering the financial accounting, income tax and internal control implications of SFAS No. 123(R).

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Goodwill

      Goodwill and intangible assets that have indefinite lives are not amortized but rather are tested at least annually for impairment or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be fully recoverable. The goodwill impairment test involves a two-step approach. Initially the fair values of the reporting units are compared with their carrying amount, including goodwill, to identify potential impairment. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized for the excess, if any, of the carrying value of goodwill over the implied fair value of goodwill. Intangible assets that have finite useful lives continue to be amortized over their useful lives.

      As of March 31, 2005 and 2004, our goodwill totaled approximately $10 million. We performed our annual tests for impairment in the quarters ended March 31, 2005 and 2004, and concluded that there were no impairments.

Results of Operations

Results of Operations for the Year Ended March 31, 2005 as Compared to the Year Ended March 31, 2004.

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

	For the Year
	Ended
	March 31,
	2005			2004
U.S. Operations		99	%		99	%
Outside U.S.		1	%		1	%
		100	%		100	%
Data center		97	%		94	%
Construction contract and fee revenue		3	%		6	%
		100	%		100	%

      Data center revenues consist of:

	For the Year Ended March 31,
	2005				2004
Colocation	$	21,402,860	61	%	$	9,861,638	58	%
Exchange point services		4,564,283	13	%		3,571,709	21	%
Managed and professional services		9,017,282	26	%		3,179,264	19	%
Other		918	0	%		421,766	2	%
	$	34,985,343	100	%	$	17,034,377	100	%
Technology infrastructure buildouts		11,832,745				—
Total data center revenues	$	46,818,088			$	17,034,377

      The increase in data center revenues was mainly attributable to an increase in our deployed customer base and the completion of three technology infrastructure projects. The increase in revenues from collocation, exchange point services and managed and professional services was primarily the result of growth in our deployed customer base from 152 customers as of March 31, 2004 to 210 customers as of March 31, 2005 and the increase in mix of data center service revenues derived from managed and professional services from 19% to 26% for the year ended March 31, 2004 and 2005, respectively.

      Data center revenues consist of:

•  colocation services, such as leasing of space and provisioning of power;

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•  exchange point services, such as peering and cross connects;

•  managed and professional services, such as network management, network monitoring, other network operating center services, procurement of connectivity, managed router services, and technical support and consulting

•  technology infrastructure build-outs which represent turnkey design and installation of technology infrastructure for existing customers.

      During the year ended March 31, 2005, we completed three technology infrastructure build-outs under U.S. federal government contracts that included the procurement, installation and configuration of specialized equipment at the NAP of the Americas facility in Miami. Under the completed contract method, we recognized approximately $11.8 million as technology infrastructure build-outs revenue upon delivery to, and formal acceptance by, the customer. As a result, the percentage of data center revenues derived from the U.S. federal government increased to 42% for the year ended March 31, 2005 from 13% for the year ended March 31, 2004.

      Our utilization of total net colocation space increased to 8.3% as of March 31, 2005 from 6.5% as of March 31, 2004. Our utilization of total net colocation space represents the percentage of space billed versus total space available for customers. On December 31, 2004, we purchased TECOTA, the entity that owns the 750,000 square feet building in which the NAP of the Americas is housed. Prior to this acquisition, we leased 240,000 square feet of the building. For comparative purposes, total space available to customers includes our estimate of available space to customers in the entire building for both March 31, 2005 and 2004.

      The increase in exchange point services is mainly due to an increase in cross-connects billed to customers. Cross-connects billed to customers increased to 2,505 as of March 31, 2005 from 1,417 as of March 31, 2004 driven by growth in our customer base and in the number of cross connects per customer.

      The increase in managed and professional services is mainly due to an increase of approximately $5.0 million in managed services provided under U.S. federal government contracts.

      We anticipate an increase in revenue from colocation exchange point and managed and professional services as we add more customers, sell additional services to existing customers and introduce new products and services. We anticipate that the percentage of revenue derived from federal government customers will fluctuate depending on the timing of exercise of expansion options under existing contracts and the rate at which we sell additional services to the public sector.

      Construction Contract and Fee Revenue. Construction contract revenue increased $150,000 to $1.33 million for the year ended March 31, 2005 from $1.18 million for the year ended March 31, 2004. We completed one construction contract in the year ended March 31, 2005, and as of that date, we have no construction contracts in process. Due to our opportunistic approach to our construction business, we expect revenues from construction contracts to significantly fluctuate year to year.

      Data Center Operations Expenses. Data center operations expenses increased $19.7 million, to $36.1 million for the years ended March 31, 2005 from $16.4 million for the year ended March 31, 2004. Data center operations expenses consist mainly of procurement of equipment, rent, operations personnel, property taxes, electricity, chilled water and connectivity and security services. The increase in total data center operations expenses is mainly due to increases of approximately $11.8 million related to technology infrastructure build-outs, $4.6 million in personnel costs, $1.4 million in rent, and $2.5 million in connectivity costs.

      In connection with the three completed technology infrastructure build-outs, we incurred $11.8 million in direct costs, including the purchase of specialized equipment. Under the completed contract method, these contract costs were deferred until our delivery to, and acceptance by, the customer in the quarters ended December 31, 2004 and March 31, 2005.

      The increase in personnel costs is mainly due to an increase in operations and engineering staff levels. Our staff levels increased to 119 employees as of March 31, 2005 from 75 as of March 31, 2004, which resulted in a $3.8 million increase in base payroll and relocation expenses of approximately $200,000. The increase in

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employees is mainly attributable to the hiring of personnel with the required security clearances to work under existing and anticipated government contracts. Incentive bonuses expense totaled approximately $607,000 during the year ended March 31, 2005. There were no incentive bonuses in the year ended March 31, 2004.

      The increase in rent expense is mainly due to new leases in Brazil and Spain and the leasing of additional space in the building where the NAP of the Americas is housed for nine months ended December 31, 2004. As a result of our December 31, 2004 acquisition of TECOTA, we will no longer have rent expense related to this facility. Because of the July 2003 opening of our facilities in California, we recorded in the year ended March 31, 2005 our first full year of rent expense.

      The increase in the procurement of connectivity is due to an increase in services provided by us to the U.S. federal government. We anticipate that some data center expenses, principally electricity, chilled water, and costs related to managed services will increase as we provide additional services to existing customers and introduce new products and services. Personnel costs will also increase as we continue to increase our team of employees with government security clearances in anticipation of additional U.S. federal government contracts.

      Construction Contract Expenses. Construction contract expenses decreased $109,000 in the year ended March 31, 2005 to $809,000 from $918,000 for the year ended March 31, 2004. The increase is proportionately lower than the increase in construction revenues due to better margins.

      Sales and Marketing Expenses. Sales and marketing expenses increased $2.0 million to $5.4 million for the year ended March 31, 2005 from $3.4 million for the year ended March 31, 2004. The most significant components of the increase in sales and marketing expenses are personnel costs, including sales commissions resulting from increases in staff levels (from 20 employees as of March 31, 2004 to 30 employees as of March 31, 2005) and higher commissions resulting from increased revenues.

      General and Administrative Expenses. Excluding non-cash stock based compensation charges of $2.2 million in the year ended March 31, 2004, general and administrative expenses increased $2.1 million or 18% to $13.2 million for the year ended March 31, 2005 from $11.1 million for the year ended March 31, 2004. The increase was due to an additional $1.3 million in consulting and accounting fees, and $602,000 in travel expenses. The increase in consulting and accounting fees is mainly due to additional SEC reporting and Sarbanes-Oxley compliance work. Increase in travel expenses is mainly due to increased travel to our facilities in Madrid, Corvin and Sao Paulo.

      We recognized a non-cash, stock-based compensation charge of $2.2 million in the year ended March 31, 2004 in connection with the change in our employment relationship with a former officer.

      Depreciation and Amortization Expense. Depreciation and amortization expense increased $1.0 million to $5.7 million for the year ended March 31, 2005 from $4.7 million for the year ended March 31, 2004. The increase was due to additions to building and improvements acquired as part of the TECOTA purchase.

      Impairment of Long-lived Assets. During the year ended March 31, 2005, we wrote off $813,000 related to equipment that is considered obsolete.

      Change in Fair Value of Derivatives Embedded within Convertible Debt. Our 9% senior convertible notes due June 15, 2009 contain embedded derivatives that require separate valuation from the senior convertible notes. We recognize these embedded derivatives as a liability in our balance sheet, measure them at their estimated fair value and recognize changes in the estimated fair value of the derivative instruments in earnings. We estimated that the embedded derivatives had an initial estimated fair value of approximately $35,480,000 and a March 31, 2005 estimated fair value of approximately $20,100,000. The embedded derivatives derive their value primarily based on changes in the price and volatility of our common stock. The closing price of our common stock decreased to $6.50 on March 31, 2005 from $9.30 per share as of the initial valuation date. As a result, during the year ended March 31, 2005, we recognized a $15.3 million gain from the change in estimated fair value of the embedded derivatives. Over the life of the senior convertible notes, given the historical volatility of our common stock, changes in the estimated fair value of the embedded derivatives are expected to have a material effect on our results of operations. The estimated fair value of the embedded derivatives increases as the price of our common stock increases. See “Quantitative and Qualitative

7

Disclosures about Market Risk.” Furthermore, we have estimated the fair value of these embedded derivatives using a theoretical model based on the historical volatility of our common stock of (72% as of March 31, 2005) over the past year. If a market develops for our senior convertible notes or we are able to find comparable market data, we may be able to use in the future market data to adjust our historical volatility by other factors such as trading volume and our estimated fair value of these embedded derivatives could be significantly different. Any such adjustment would be made prospectively. During the year ended March 31, 2004, we did not have any embedded derivatives.

      Gain on Debt Restructuring and Conversion. During the year ended March 31, 2005, as a result of the extinguishment of notes payable and convertible debentures, we recognized a gain totaling $3.4 million, representing the recognition of the unamortized balance of a debt restructuring deferred gain and the write off of debt issuance costs, net of an early redemption premium payment. During the year ended March 31, 2004, we recognized a non-cash gain of $8.5 million related to financing transactions whereby $21.6 million of our construction payables plus $1.0 million in accrued interest was converted to 3,010,000 shares of our common stock with a $14.1 million market value upon conversion.

      Interest Expense. During the year ended March 31, 2005, interest expense increased $852,000 from $14.6 million for the year ended March 31, 2004 to $15.5 million for the year ended March 31, 2005. This increase was due to additional debt incurred for the December 31, 2004 acquisition of TECOTA, partially offset by a decrease in the average interest rate of our borrowings.

      Net Loss. Our net loss decreased from $22.5 million for the year ended March 31, 2004 to 9.9 million for the year ended March 31, 2005. The decrease is mainly due to the change in the estimated fair value of the embedded derivative of $15.2 million for the year ended March 31, 2005.

      The net loss is primarily the result of insufficient revenues to cover our operating and interest expenses. We expect to generate net losses until we reach required levels of monthly revenues.

Results of Operations for the Year Ended March 31, 2004 as Compared to the Year Ended March 31, 2003

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

		For the
		Twelve Months
		Ended
		March 31,
		2004			2003
Revenue
	U.S.		99	%		98	%
	Outside US		1	%		2	%
			100	%		100	%
	Data center		94	%		75	%
	Construction contract and fee revenue		6	%		25	%
			100	%		100	%

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      Data center revenues consist of:

		For the Twelve Months Ended March 31,
		2004				2003
Colocation		$	9,861,638	58	%	$	6,020,779	55	%
Exchange point services			3,571,709	21	%		2,125,370	19	%
Managed and professional services			3,179,264	19	%		1,791,750	16	%
Contract termination fee			421,766	2	%		1,095,086	10	%
	Data center revenue	$	17,034,377	100	%	$	11,032,985	100	%

      The increase in data center revenues was primarily the result of growth in our deployed customer base from 86 customers as of March 31, 2003 to 152 customers as of March 31, 2004. Data center revenues consist of:

•  colocation services, such as leasing of space and provisioning of power;

•  exchange point services, such as peering and cross connects; and

•  managed and professional services, such as network management, network monitoring, procurement and installation of equipment and procurement of connectivity, managed router services, technical support and consulting.

      Our utilization of total net colocation space increased to 13.2% as of March 31, 2004 from 6.3% as of March 31, 2003. Our utilization of total net colocation space represents the percentage of space billed versus total space available for customers. For comparative purposes total space available for customers includes third floor space in the TECOTA building for both March 31, 2004 and 2003. Cross connects billed to customers increased to 1,417 as of March 31, 2004 from 662 as of March 31, 2003. Data center — contract termination fee represents amounts received from two customers for the termination of their contracted services with the NAP of the Americas. As a result of these contract terminations, we experienced a decrease in monthly recurring revenues of approximately $14,000. Contract termination fees are recognized upon contract termination when there are no remaining contingencies or obligations on our part.

      We anticipate an increase in revenue from colocation, exchange point and managed services as we add more customers to our network of IXs, sell additional services to existing customers and introduce new products and services. We also expect managed and professional services to become an important source of revenue and increase as a proportion of data center-services.

      Construction contract and fee revenue decreased $2.5 million to $1.2 million for the twelve months ended March 31, 2004 from $3.7 million for the twelve months ended March 31, 2003. During the twelve months ended March 31, 2004 and 2003, we completed three and eleven construction contracts, respectively. As of March 31, 2004, we have one construction contract in process. Due to our opportunistic approach to our construction business, we expect revenues from construction contracts to significantly fluctuate from quarter to quarter. We do not expect any revenues from development, commission and construction fees in the foreseeable future. We anticipate focusing our efforts on obtaining construction contracts for projects related to technology infrastructure.

      Data Center Operations Expenses. Data center operations expenses increased $5.2 million, or 46.4%, to $16.4 million for the twelve months ended March 31, 2004 from $11.2 million for the twelve months ended March 31, 2003. Data center operations expenses consist mainly of rent, operations personnel, property taxes, electricity, chilled water, procurement of equipment and connectivity and security services. The increase in total data center operations expenses is due to an increase of $3.1 million in rent, an increase of $376,000 in electricity and chilled water, an increase of $526,000 in personnel costs and an increase of $745,000 in costs related to the procurement of equipment and connectivity under a U.S. federal government contract. The increase in rent expense is due to the July 2003 opening of our NAP-West facilities in Santa Clara, California and the leasing of an additional 120,000 square feet of space in the third floor of the TECOTA building, which commenced in November 2003. We have been paying rent for our NAP-West facilities since January 2001

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but before we opened these facilities in July 2003, related expenses were recorded as impairment charges. The increase in personnel costs is mainly attributable to staff increase from 60 operations employees in fiscal year 2003 to 75 for fiscal year 2004. We anticipate that some data center expenses, principally electricity, chilled water, payroll and costs related to managed services, will increase as we provide additional services to existing customers and introduce new products and services.

      Contract Construction Expenses. Contract construction expenses decreased approximately $2.0 million to $918,000 for the twelve months ended March 31, 2004 from $3.0 million for the twelve months ended March 31, 2003. This decrease is a result of the decrease in number of construction contracts and average dollar amount of those contracts as discussed above in “construction contract revenue.” We do not currently anticipate losses on any of the individual construction contracts.

      General and Administrative Expense. Excluding non-cash charges of $2.2 million for stock-based compensation, general and administrative expenses decreased $1.4 million, or 10.4%, to $11.1 million for the twelve months ended March 31, 2004 from $12.5 million for the twelve months ended March 31, 2003. General and administrative expenses consist primarily of salaries and related expenses, professional service fees, rent and other general corporate expenses. The decrease in general and administrative expenses is due to a decrease in payroll of $709,000. In connection with the modification to our employment relationship with three employees, we accelerated the vesting on their outstanding stock options, awarded new stock options and/or extended the life of their outstanding stock options. As a result, we recognized a non-cash, stock-based compensation charge of approximately $2.2 million in the year ended March 31, 2004. The decrease in payroll is mainly due to a reduction in staff levels. The average number of employees whose salaries are included in general and administrative expenses decreased from 60 for the twelve months ended March 31, 2003 to 50 for the twelve months ended March 31, 2004.

      Sales and Marketing Expenses. Sales and marketing expenses decreased $800,000, or 19.0%, to $3.4 million for the twelve months ended March 31, 2004 from $4.2 million for the twelve months ended March 31, 2003. The significant components of sales and marketing expenses are payroll and benefits. The decrease in sales and marketing expenses is due to decreases in investor relations of $442,000, in travel and entertainment of $172,000, and in payroll and benefits of $89,000. During the twelve months ended March 31, 2003, we issued warrants valued at $442,000 to Strategic Growth International for investor relations services. The decrease in payroll is mainly due to staff level reductions. The number of employees whose salaries are included in sales and marketing expenses were 20 and 21 as of March 31, 2004 and 2003, respectively. The decrease in travel and entertainment is the result of overall reduction in spending due to cost containment efforts.

      Depreciation and Amortization Expense. Depreciation and amortization expense decreased $400,000 to $4.7 million for the twelve months ended March 31, 2004 from $5.1 million for the twelve months ended March 31, 2003. The decrease was due to reductions in property and equipment resulting primarily from impairment charges recorded during the year ended March 31, 2003, which in turn decreased depreciation expense.

      Impairment of Long-Lived Assets. During the three months ended March 31, 2004, we performed our annual test for impairment and concluded that these assets were not impaired. Due principally to the decline and uncertainty of the telecommunications and Internet infrastructure markets, we recognized during the year ended March 31, 2003 the following impairment charges:

Facility in Santa Clara, California	$	350,000
Post Shell goodwill		2,315,336
TECOTA promote interest		904,964
Equipment		450,000
	$	4,020,300

      As a result of impairment charges, the long-lived assets described in the table above became fully impaired.

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      Debt Restructuring. During the twelve months ended March 31, 2004, we incurred a non-cash gain of $8.5 million related to financing transactions whereby $21.6 million of our construction payables plus $1.0 million in accrued interest was converted to 30.1 million shares of our common stock with a $14.1 million market value upon conversion.

      Interest Expense. Excluding non-cash charges, interest expense decreased to $7.1 million from $11.0 million for the years ended March 31, 2004 and 2003, respectively. We reduced the interest expense as a result of a reduction in the principal balance outstanding and a reduction in the interest rates. Due to the conversion of some of our debt and construction payables to equity which was partially offset by the issuance of new debt, our principal balance outstanding decreased to $77.7 million from $95.1 million as of March 31, 2004 and 2003, respectively. In addition our average interest rate on our debt decreased to 8.1% from 9.8% for the years ended March 31, 2004 and 2003, respectively. Net non-cash charges of approximately $7.5 million represent the amortization of a beneficial conversion feature as additional interest expense partially offset by the amortization of a debt restructuring gain as reductions to interest expense.

      Other income (expenses). On November 10, 2003, a developer agreed to pay us a $3.8 million non-refundable fee to develop a facility in Australia. The developer paid us $500,000 upon execution of the agreement and the remaining balance of $3.3 million on December 10, 2003. On February 11, 2004, the developer notified us it did not wish to proceed with negotiations regarding the construction of a TerreNAP Center in Australia. On February 19, 2004, we acknowledged receipt of the developer’s notification, and terminated the agreement with the developer. As required by the agreement, we did not conduct any business related to the operation or management of data centers in Australia until the agreement was terminated. We have no further obligations in connection with the agreement with the developer and as a result recognized the $3.8 million non-refundable fee in the quarter ended March 31, 2004.

      Net Loss. Net loss for our reportable segments decreased from $41.2 million to $22.5 million: primarily because we were unable to generate sufficient revenues to cover our operating and interest expenses. We expect to generate net losses until we reach required levels of monthly revenues

Liquidity and Capital Resources

Liquidity and Recent Developments

      On March 14, 2005, we sold 6,000,000 shares of our common stock at $7.30 per share through an underwritten public offering. We received net proceeds of approximately $40.7 million, after deducting underwriting discounts and commissions and estimated offering expenses. We have been and intend to continue using the net proceeds of the offering for general corporate purposes to support the growth of our business, which may include capital investments to build-out our existing facilities and potential acquisitions of complementary businesses.

      On December 31, 2004, we purchased the remaining 99.16% equity interests of TECOTA that were not owned by us and TECOTA became our wholly-owned subsidiary. TECOTA owns the building in which the NAP of the Americas is housed. Throughout this report, we refer to this building as the NAP of the Americas building. In connection with this purchase, we paid approximately $40.0 million for the equity interests and repaid an approximately $35.0 million mortgage to which the NAP of the Americas building was subject. We financed the purchase and repayment of the mortgage from two sources. We obtained a $49.0 million first mortgage loan from Citigroup Global Markets Realty Corp., $4.0 million of the proceeds of which are restricted and can only be used to fund customer related improvements made to the NAP of the Americas in Miami. Simultaneously, we issued senior secured notes in an aggregate principal amount equal to $30.0 million and sold 306,044 shares of our common stock valued at $2.0 million to the Falcon investors. The $49.0 million loan by Citigroup is collateralized by a first mortgage on the NAP of the Americas building and a security interest in all then existing building improvements that we have made to the building, certain of our deposit accounts and any cash flows generated from customers by virtue of their activity at the NAP of the Americas building. The mortgage loan matures in February 2009 and bears interest at a rate per annum equal to the greater of (a) 6.75% and (b) LIBOR plus 4.75%. In addition, if an event of default occurs under the mortgage loan agreement, we must pay interest at a default rate equal to 5% per annum in excess of the rate

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otherwise applicable under the mortgage loan agreement on any amount we owe to the lenders but have not paid when due until that amount is paid in full. The terms of the mortgage loan agreement require us to pay annual rent of $5,668,992 to TECOTA until May 31, 2006 at which time we will be required to pay annual rent to TECOTA at previously agreed upon rental rates for the remaining term of the lease. The senior secured notes are collateralized by substantially all of our assets other than the NAP of the Americas building, including the equity interests in our subsidiaries, bear cash interest at 9.875% per annum and “payment in kind” interest at 3.625% per annum, and mature in March 2009. In the event we achieve specified leverage ratios, the interest rate applicable to the senior secured notes will be reduced to 12.5% but will be payable in cash only. Overdue payments under the senior secured notes bear interest at a default rate equal to 2% per annum in excess of the rate of interest then borne by the senior secured notes. Our obligations under the senior secured notes are guaranteed by substantially all of our subsidiaries.

      We may redeem some or all of the senior secured notes for cash at any time after December 31, 2005. If we redeem the notes during the twelve month period commencing on December 31, 2005 or the six month period commencing on December 31, 2006, June 30, 2007, or December 31, 2007, the redemption price equals 115.0%, 107.5%, 105.0%, and 102.3%, respectively, of their principal amount, plus accrued and unpaid interest, if any, to the redemption date. After June 30, 2008, the redemption price equals 100% of their principal amounts. Also, if there is a change in control, the holders of these notes will have the right to require us to repurchase their notes at a price equal to 100% of the principal amount, plus accrued and unpaid interest.

      Our new mortgage loan and our senior secured notes include numerous covenants imposing significant financial and operating restrictions on our business. The covenants place restrictions on our ability to, among other things:

•  incur more debt;

•  pay dividends, redeem or repurchase our stock or make other distributions;

•  make acquisitions or investments;

•  enter into transactions with affiliates;

•  merge or consolidate with others;

•  dispose of assets or use asset sale proceeds;

•  create liens on our assets; and

•  extend credit.

      Also, a change in control without the prior consent of the lenders could allow the lenders to demand repayment of the loan. Our ability to comply with these and other provisions of the new mortgage loan and the senior secured notes can be affected by events beyond our control. Our failure to comply with the obligations in the new mortgage loan and the senior secured notes could result in an event of default under the new mortgage loan and the senior secured notes, which, if not cured or waived, could permit acceleration of the indebtedness or other indebtedness which could have a material adverse effect on us.

      In June 2004, we privately placed $86.25 million in aggregate principal amount of 9% senior convertible notes due June 15, 2009 to qualified institutional buyers. The notes bear interest at a rate of 9% per annum, payable semi-annually, on each December 15 and June 15 and are convertible at the option of the holders at $12.50 per share. We utilized net proceeds of $81.0 million to pay approximately $46.3 million of outstanding loans and convertible debt. The balance of the proceeds will be used for possible acquisitions and for general corporate purposes, including working capital and capital expenditures. The notes rank pari passu with all existing and future unsecured and unsubordinated indebtedness, senior in right of payment to all existing and future subordinated indebtedness, and rank junior to any future secured indebtedness.

      If there is a change in control, the holders of the 9% senior convertible notes have the right to require us to repurchase their notes at a price equal to 100% of the principal amount, plus accrued and unpaid interest. If a change of control occurs and at least 50% of the consideration for our common stock consists of cash, the

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holders of the 9% senior convertible notes may elect to receive the greater of the repurchase price described above or the total redemption amount. The total redemption amount will be equal to the product of (x) the average closing prices of our common stock for the five trading days prior to the announcement of the change of control and (y) the quotient of $1,000 divided by the applicable conversion price of the 9% senior convertible notes, plus a make-whole premium of $180 per $1,000 of principal if the change of control takes place before December 16, 2005, reducing to $45 per $1,000 of principal if the change of control takes place between June 16, 2008 and December 15, 2008. If we issue a cash dividend on our common stock, we will pay contingent interest to the holders equal to the product of the per share cash dividend and the number of shares of common stock issuable upon conversion of each holder’s note.

      We may redeem some or all of the 9% senior convertible notes for cash at any time on or after June 15, 2007 if the closing price of our common shares has exceeded 200% of the applicable conversion price for at least 20 trading days within a period of 30 consecutive trading days ending on the trading day before the date we mail the redemption notice. If we redeem the 9% senior convertible notes during the twelve month period commencing on June 15, 2007 or 2008, the redemption price equals 104.5% or 102.25%, respectively, of their principal amount, plus accrued and unpaid interest, if any, to the redemption date, plus an amount equal to 50% of all remaining scheduled interest payments on the 9% senior convertible notes from, and including, the redemption date through the maturity date.

      The 9% senior convertible notes contain an early conversion incentive for holders to convert their notes into shares of common stock before June 15, 2007. If exercised, the holders will receive the number of shares of our common stock to which they are entitled and an early conversion incentive payment in cash or stock, at our option, equal to one-half the aggregate amount of interest payable through July 15, 2007.

      We have incurred losses from operations in each quarter and annual period since our merger with AmTec, Inc. Our cash flows from operations for the years ended March 31, 2005 and 2004 were negative. As of March 31, 2005, our total liabilities were approximately $168.7 million. Due to the issuance of additional debt and equity, our working capital increased from a $10.3 million deficit, as of March 31, 2004, to a $34.8 million surplus, as of March 31, 2005.

      As of March 31, 2005, our principal source of liquidity was our $44.0 million in cash and cash equivalents. We anticipate that this cash, coupled with our anticipated cash flows generated from operations, will be sufficient to meet our capital expenditures, working capital, debt service and corporate overhead requirements in connection with our currently identified business objectives. Our projected revenues and cash flows depend on several factors, some of which are beyond our control, including the rate at which we provide services, the timing of exercise of expansion options by customers under existing contracts, the rate at which new services are sold to the government sector and the commercial sector, the ability to retain the customer base, the willingness and timing of potential customers in outsourcing the housing and management of their technology infrastructure to us, the reliability and cost-effectiveness of our services and our ability to market our services.

Sources and Uses of Cash

      Cash used in operations for the year ended March 31, 2005 was approximately $24.4 million compared to cash used in operations of $15.9 million for the year ended March 31, 2004, an increase of approximately $8.5 million. The increase in cash used in operations is mainly due to providing financing in 2005 to the U.S. government for certain technology infrastructure buildouts and to the payment of additional interest as a result of additional financing for the TECOTA acquisition.

      Cash used in investing activities for the year ended March 31, 2005 was $91.0 million compared to cash used in investing activities of $4.1 million for the year ended March 31, 2004, an increase of $86.9 million. This increase is primarily due to the acquisitions of TECOTA and NAP Madrid and purchases of property and equipment.

      Cash provided by financing activities for the year ended March 31, 2005 was $155.0 million compared to cash provided by financing activities of $22.9 million for the year ended March 31, 2004, an increase of $132.1 million. For the year ended March 31, 2005, cash provided by financing activities includes proceeds

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aggregating $207.9 million from our new mortgage loan, our senior secured notes, our senior convertible notes, and the issuance of stock, partially offset by $46.8 million in payments for loans and convertible debt. For the year ended March 31, 2004, cash provided by financing activities included $27.6 million of debt and equity financing, partially offset by $4.6 million in debt repayments.

Guarantees and Commitments

      Terremark Worldwide, Inc. has guaranteed TECOTA’s obligation, as borrower, to make payments of principal and interest under the mortgage loan with Citigroup Global Markets Realty Group to the extent any of the following events shall occur:

•  TECOTA files for bankruptcy or a petition in bankruptcy is filed against TECOTA with TECOTA’s or Terremark’s consent;

•  Terremark pays a cash dividend or makes any other cash distribution on its capital stock (except with respect to its outstanding preferred stock);

•  Terremark makes any repayments of its outstanding debt other than the scheduled payments provided in the terms of the debt;

•  Terremark pledges the collateral it has pledged to the lenders or pledges any of its existing cash balances as of December 31, 2004 as collateral for another loan; or

•  Terremark repurchases any of its common stock.

      In addition Terremark has agreed to assume liability for any losses incurred by the lenders under the credit facility related to or arising from:

•  any fraud, misappropriation or misapplication of funds;

•  any transfers of the collateral held by the lenders in violation of the Citigroup credit agreement;

•  failure to maintain TECOTA as a “single purpose entity;”

•  TECOTA obtaining additional financing in violation of the terms of the Citigroup credit agreement;

•  intentional physical waste of TECOTA’s assets that have been pledged to the lenders;

•  breach of any representation, warranty or covenant provided by or applicable to TECOTA and Terremark which relates to environmental liability;

•  improper application and use of security deposits received by TECOTA from tenants;

•  forfeiture of the collateral pledged to the lenders as a result of criminal activity by TECOTA;

•  attachment of liens on the collateral in violation of the terms of the Citigroup credit agreement;

•  TECOTA’s contesting or interfering with any foreclosure action or other action commenced by lenders to protect their rights under the credit facility (except to the extent TECOTA is successful in these efforts);

•  any costs incurred by the lenders to enforce their rights under the credit facility; or

•  failure to pay assessments made against or to adequately insure the assets pledged to the lenders.

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

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      The following table represents the minimum future operating and capital lease payments for these commitments, as well as the combined aggregate maturities for the following obligations for each of the twelve months ended:

	Capital Lease
	Obligations		Operating Leases		Convertible Debt		Mortgage Payable		Notes Payable		Total
2006	$	1,117,962	$	3,198,752	$	7,763,158	$	4,219,846	$	8,523,321	$	24,823,039
2007		300,807		3,167,573		7,763,158		4,219,846		4,050,000		19,501,384
2008		181,541		3,129,655		7,763,158		4,219,846		4,050,000		19,344,200
2009		—		3,087,242		7,763,158		46,414,809		34,050,000		94,315,209
2010		—		3,172,557		90,131,579		—		—		93,304,136
Thereafter		—		31,172,525		—		—		—		31,172,525
	$	1,600,310	$	46,928,304	$	121,184,211	$	62,074,347	$	50,673,321	$	282,460,493

      As required by the terms of the Madrid lease agreement, we have obtained a five year bank guarantee in favor of the lessor in an amount equal to the annual rent payments. In connection with this bank guarantee, we have deposited 50% of the guaranteed amount, or approximately 475,000 Euros ($613,000) at the March 31, 2005 exchange rate), with the bank issuing the guarantee.

New Accounting Pronouncements

      In May 2003, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. In November 2003, the FASB issued FASB Staff Position No. 150-3 which deferred the measurement provisions of SFAS No. 150 indefinitely for certain mandatorily redeemable non-controlling interests that were issued before November 5, 2003. The FASB plans to reconsider implementation issues and, perhaps, classification or measurement guidance for those non-controlling interests during the deferral period. In 2003, we applied certain disclosure requirements of SFAS No. 150. To date, the impact of the effective provisions of SFAS No. 150 has been the presentation of the Series H redeemable preferred stock as a liability. While the effective date of certain elements of SFAS No. 150 has been deferred, the adoption of SFAS No. 150 when finalized is not expected to have a material impact on our financial position, results of operations or cash flows.

      In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment.” This Statement revises FASB Statement No. 123, “Accounting for Stock-Based Compensation” and supersedes Accounting Principles Board, or APB, Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123(R) focuses primarily on the accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123(R) requires companies to recognize in the statement of operations the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards (with limited exceptions). This Statement is effective as of the first reporting period that begins after June 15, 2005. Accordingly, we will adopt SFAS 123(R) in the second quarter of our fiscal year ending March 31, 2006. We are currently evaluating the provisions of SFAS 123(R) and have not yet determined the impact that this Statement will have on our results of operations or financial position; however, it may have a significant impact on our consolidated statement of operations as we will be required to expense the fair value of stock option grants and stock purchases under employee stock option plans.

      In June 2004, the FASB issued EITF Issue 03-1 “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” EITF Issue 03-1 establishes a common approach to evaluating other-than-temporary impairment to investments in an effort to reduce the ambiguity in impairment methodology found in APB Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock” and FASB No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, which has

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resulted in inconsistent application. In September 2004, the FASB issued FASB Staff Position EITF Issue 03-1, which deferred the effective date for the measurement and recognition guidance clarified in EITF Issue 03-1 indefinitely; however, the disclosure requirements remain effective for fiscal years ending after June 15, 2004. While the effective date for certain elements of EITF Issue 03-1 have been deferred, the adoption of EITF Issue 03-1 when finalized in its current form is not expected to have a material impact on our financial position, results of operations or cash flows.

      In April 2004, the Emerging Issues Task Force, or EITF, of the FASB approved EITF Issue 03-6 “Participating Securities and the Two — Class Method under FAS 128.” EITF Issue 03-6 supersedes the guidance in Topic No. D-95, “Effect of Participating Convertible Securities on the Computation of Basic Earnings per Share,” and requires the use of the two-class method for participating securities. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. In addition, EITF Issue 03-6 addresses other forms of participating securities, including options, warrants, forwards and other contracts to issue an entity’s common stock, with the exception of stock-based compensation (unvested options and restricted stock) subject to the provisions of APB Opinion No. 25 and SFAS No. 123. EITF Issue 03-6 is effective for reporting periods beginning after March 31, 2004 and should be applied by restating previously reported earnings per share. The adoption of EITF Issue 03-6 did not have an impact on our financial position or results of operations for the nine months ended December 31, 2004.

      Our 9% senior convertible notes contain contingent interest provisions which allow the holders of the senior convertible notes to participate in any dividends declared on our common stock. Further, our Series H and I preferred stock contain participation rights which entitle the holders to receive dividends in the event we declare dividends on our common stock. Accordingly, our senior convertible notes and the Series H and I preferred stock are considered participating securities under EITF Issue 03-6. As a result of the number of shares of our common stock currently outstanding, these participating securities are not currently anticipated to have a significant impact on the calculation of earnings per share. Furthermore, these participating securities can only impact the calculation of earnings per share in periods when we present net income.

Risk Factors

      You should carefully consider the following risks and all other information contained in this report. If any of the following risks actually occur, our business, consolidated financial conditions and results of operations could be materially and adversely affected. The risks and uncertainties described below are those that we currently believe may materially affect our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business operations.

We have a history of losses, expect future losses and may not achieve or sustain profitability.

      We have incurred net losses from operations in each quarterly and annual period since our April 28, 2000 merger with AmTec, Inc. We incurred net losses of $9.9 million, $22.5 million, and $41.2 million for the years ended March 31, 2005, 2004 and 2003, respectively. As of March 31, 2005, our accumulated deficit was $246.7 million. We cannot guarantee that we will become profitable. Even if we achieve profitability, given the evolving nature of the industry in which we operate, we may not be able to sustain or increase profitability on a quarterly or annual basis, and our failure to do so would adversely affect our business, including our ability to raise additional funds.

We may not be able to compete successfully against current and future competitors.

      Our products and services must be able to differentiate themselves from existing providers of space and services for telecommunications companies, web hosting companies and other colocation providers. In addition to competing with neutral colocation providers, we must compete with traditional colocation providers, including local phone companies, long distance phone companies, Internet service providers and

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web hosting facilities. Likewise, with respect to our other products and services, including managed services, bandwidth services and security services, we must compete with more established providers of similar services. Most of these companies have longer operating histories and significantly greater financial, technical, marketing and other resources than us.

      Because of their greater financial resources, some of our competitors have the ability to adopt aggressive pricing policies, especially if they have been able to restructure their debt or other obligations. As a result, in the future, we may suffer from pricing pressure that would adversely affect our ability to generate revenues and adversely affect our operating results. In addition, these competitors could offer colocation on neutral terms, and may start doing so in the same metropolitan areas where we have NAP centers. Some of these competitors may also provide our target customers with additional benefits, including bundled communication services, and may do so in a manner that is more attractive to our potential customers than obtaining space in our IBX centers. We believe our neutrality provides us with an advantage over these competitors. However, if these competitors were able to adopt aggressive pricing policies together with offering colocation space, our ability to generate revenues would be materially adversely affected. We may also face competition from persons seeking to replicate our IBX concept by building new centers or converting existing centers that some of our competitors are in the process of divesting. We may experience competition from our landlords in this regard. Rather than leasing available space in our buildings to large single tenants, they may decide to convert the space instead to smaller square foot units designed for multi-tenant colocation use. Landlords may enjoy a cost effective advantage in providing similar services as our NAPs, and this could also reduce the amount of space available to us for expansion in the future. Competitors may operate more successfully or form alliances to acquire significant market share. Furthermore, enterprises that have already invested substantial resources in outsourcing arrangements may be reluctant or slow to adopt our approach that may replace, limit or compete with their existing systems. In addition, other companies may be able to attract the same potential customers that we are targeting. Once customers are located in competitors’ facilities, it may be extremely difficult to convince them to relocate to our NAP centers.

      Our success in retaining key employees and discouraging them from moving to a competitor is an important factor in our ability to remain competitive. As is common in our industry, our employees are typically compensated through grants of stock options in addition to their regular salaries. We occasionally grant new stock options to employees as an incentive to remain with us. If we are unable to adequately maintain these stock option incentives and should employees decide to leave, this may be disruptive to our business and may adversely affect our business, financial condition and results of operations.

We anticipate that an increasing portion of our revenues will be from contracts with agencies of the United States government, and uncertainties in government contracts could adversely affect our business.

      During the year ended March 31, 2005, revenues under contracts with agencies of the U.S. federal government constituted 42% of our data center revenues. Generally, U.S. government contracts are subject to oversight audits by government representatives, to profit and cost controls and limitations, and to provisions permitting modification or termination, in whole or in part, without prior notice, at the government’s convenience. In some cases, government contracts are subject to the uncertainties surrounding congressional appropriations or agency funding. Government contracts are subject to specific procurement regulations. Failure to comply with these regulations and requirements could lead to suspension or debarment from future government contracting for a period of time, which could limit our growth prospects and adversely affect our business, results of operations and financial condition. Government contracts typically have an initial term of one year. Renewal periods are exercisable at the discretion of the U.S. government. We may not be successful in winning contract awards or renewals in the future. Our failure to renew or replace U.S. government contracts when they expire could have a material adverse effect on our business, financial condition, or results of operations.

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We derive a significant portion of our revenues from a few clients; accordingly, a reduction in our clients’ demand for our services or the loss of clients would likely impair our financial performance.

      During the year ended March 31, 2005, we derived approximately 42% and 12% of our data center revenues from two customers. During the year ended March 31, 2004, we derived approximately 37% and 10% of our data center revenues from these same two customers. Because we derive a large percentage of our revenues from a few major customers, our revenues could significantly decline if we lose one or more of these customers or if the amount of business we obtain from them is reduced. See “Business — Customers.”

We have significant debt service obligations which will require the use of a substantial portion of our available cash.

      We are a highly leveraged company. As of March 31, 2005, our total liabilities were approximately $168.7 million and our total stockholders’ equity was $40.2 million. Our new mortgage loan and our senior secured notes are, collectively, collateralized by substantially all of our assets. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

      Each of these obligations requires significant amounts of liquidity. Should we need additional capital or financing, our ability to arrange financing and the cost of this financing will depend upon many factors, including:

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

•  conditions in the Internet infrastructure market;

•  credit availability from banks or other lenders;

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

•  the success of our facilities.

      We may be unable to find additional sources of liquidity on terms acceptable to us, if at all, which could adversely affect our business, results of operations and financial condition. Also, a default could result in acceleration of our indebtedness. If this occurs, our business and financial condition would be adversely affected.

The mortgage loan with Citigroup and our senior secured notes contain numerous restrictive covenants.

      Our mortgage loan with Citigroup and our senior secured notes contain numerous covenants imposing restrictions on our ability to, among other things:

•  incur more debt;

•  pay dividends, redeem or repurchase our stock or make other distributions;

•  make acquisitions or investments;

•  enter into transactions with affiliates;

•  merge or consolidate with others;

•  dispose of assets or use asset sale proceeds;

•  create liens on our assets; and

•  extend credit.

      Our failure to comply with the obligations in our mortgage loan with Citigroup and our senior secured notes could result in an event of default under the mortgage loan or the senior secured notes, which, if not cured or waived, could permit acceleration of the indebtedness or our other indebtedness, or result in the same consequences as a default in payment. If the acceleration of the maturity of our debt occurs, we may not be

18

able to repay our debt or borrow sufficient funds to refinance it on terms that are acceptable to us, which could adversely impact our business, results of operations and financial condition.

Our substantial leverage and indebtedness could adversely affect our financial condition, limit our growth and prevent us from fulfilling our debt obligations.

      Our substantial indebtedness could have important consequences to us and may, among other things:

•  limit our ability to obtain additional financing to fund our growth strategy, working capital, capital expenditures, debt service requirements or other purposes;

•  limit our ability to use operating cash flow in other areas of our business because we must dedicate a substantial portion of these funds to make principal payments and fund debt service requirements;

•  cause us to be unable to satisfy our obligations under our existing or new debt agreements;

•  make us more vulnerable to adverse general economic and industry conditions;

•  limit our ability to compete with others who are not as highly leveraged as we are; and

•  limit our flexibility in planning for, or reacting to, changes in our business, industry and market conditions.

      In addition, subject to restrictions in our existing debt instruments, we may incur additional indebtedness. If new debt is added to our current debt levels, the related risks that we now face could intensify. Our growth plans and our ability to make payments of principal or interest on, or to refinance, our indebtedness, will depend on our future operating performance and our ability to enter into additional debt and/or equity financings. If we are unable to generate sufficient cash flows in the future to service our debt, we may be required to refinance all or a portion of our existing debt, to sell assets or to obtain additional financing. We may not be able to do any of the foregoing on terms acceptable to us, if at all.

We have identified material weaknesses in our internal control over financial reporting that may prevent us from being able to accurately report our financial results or prevent fraud, which could harm our business and operating results, the trading price of our stock and our access to capital.

      Effective internal controls are necessary for us to provide reliable and accurate financial reports and prevent fraud. In addition, Section 404 under the Sarbanes-Oxley Act of 2002 requires that we assess, and our independent registered public accounting firm attest to, the design and operating effectiveness of our internal control over financial reporting. If we cannot provide reliable and accurate financial reports and prevent fraud, our business and operating results could be harmed. In connection with our evaluation of internal control over financial reporting, we identified material weaknesses, and may discover in the future, areas of our internal control that need improvement. Our efforts regarding internal controls are discussed in detail in this report under Item 9A, “Controls and Procedures.” We cannot be certain that any remedial measures we take will ensure that we design, implement, and maintain adequate controls over our financial processes and reporting in the future or will be sufficient to address and eliminate these material weaknesses. Remedying these material weaknesses that have been identified, and any additional deficiencies, significant deficiencies or material weaknesses that we or our independent registered public accounting firm may identify in the future, could require us to incur additional costs, divert management resources or make other changes. We have not yet fully remediated the material weaknesses related to maintaining adequate controls to restrict access to key financial applications and data and controls over the custody and processing of disbursements and of customer payments received by mail; and controls over the billing function to ensure that invoices capture all services delivered to customers and that such services are invoiced and recorded accurately as revenue. If we do not remedy these material weaknesses, we may be required to report in our Quarterly Report on Form 10-Q for the quarter ending June 30, 2005 or in subsequent reports filed with the Securities and Exchange Commission that material weaknesses in our internal controls over financial reporting continue to exist. Any delay or failure to design and implement new or improved controls, or difficulties encountered in their implementation or operation, could harm our operating results, cause us to fail to meet our financial reporting obligations, or

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prevent us from providing reliable and accurate financial reports or avoiding or detecting fraud. Disclosure of our material weaknesses, any failure to remediate such material weaknesses in a timely fashion or having or maintaining ineffective internal controls could cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock and our access to capital.

If our financial condition deteriorates, we may be delisted by the American Stock Exchange and our stockholders could find it difficult to sell our common stock.

      Our common stock currently trades on the American Stock Exchange, or AMEX. The AMEX requires companies to fulfill specific requirements in order for their shares to continue to be listed. Our securities may be considered for delisting if:

•  our financial condition and operating results appear to be unsatisfactory;

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

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

      If our shares are delisted from the AMEX, our stockholders could find it difficult to sell our stock. To date, we have had no communication from the AMEX regarding delisting. If our common stock is delisted from the AMEX, we may apply to have our shares quoted on NASDAQ’s Bulletin Board or in the “pink sheets” maintained by the National Quotation Bureau, Inc. The Bulletin Board and the “pink sheets” are generally considered to be less efficient markets than the AMEX. In addition, if our shares are no longer listed on the AMEX or another national securities exchange in the United States, our shares may be subject to the “penny stock” regulations. If our common stock were to become subject to the penny stock regulations it is likely that the price of our common stock would decline and that our stockholders would find it difficult to sell their shares.

We are dependent on key personnel and the loss of these key personnel could have a material adverse effect on our success.

      We are highly dependent on the skills, experience and services of key personnel, particularly Manuel D. Medina, our Chairman, President and Chief Executive Officer. The loss of Mr. Medina or other key personnel could have a material adverse effect on our business, operating results or financial condition. Our potential growth and expansion are expected to place increased demands on our management skills and resources. Therefore, our success also depends upon our ability to recruit, hire, train and retain additional skilled and experienced management personnel. Employment and retention of qualified personnel is important due to the competitive nature of our industry. Our inability to hire new personnel with the requisite skills could impair our ability to manage and operate our business effectively.

Our business could be harmed by prolonged electrical power outages or shortages, or increased costs of energy.

      Substantially all of our business is dependent upon the continued operation of the TECOTA building. The TECOTA building and our other IX facilities are susceptible to regional costs of power, electrical power shortages and planned or unplanned power outages caused by these shortages. A power shortage at an IX facility may result in an increase of the cost of energy, which we may not be able to pass on to our customers. We attempt to limit exposure to system downtime by using backup generators and power supplies. Power outages, which last beyond our backup and alternative power arrangements, could harm our customers and our business.

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We have acquired and may acquire other businesses, and these acquisitions involve numerous risks.

      As part of our strategy, we may pursue additional acquisitions of complementary businesses, products services and technologies to enhance our existing services, expand our service offerings and enlarge our customer base. If we complete future acquisitions, we may be required to incur or assume additional debt and make capital expenditures and issue additional shares of our common stock or securities convertible into our common stock as consideration, which will dilute our existing stockholders’ ownership interest and may adversely affect our results of operations. Our ability to grow through acquisitions involves a number of additional risks, including the following:

•  the ability to identify and consummate complementary acquisition candidates;

•  the possibility that we may not be able to successfully integrate the operations, personnel, technologies, products and services of the acquired companies in a timely and efficient manner;

•  diversion of management’s attention from normal daily operations to negotiate acquisitions and integrate acquired businesses;

•  insufficient revenues to offset significant unforeseen costs and increased expenses associated with the acquisitions;

•  challenges in completing products associated with in-process research and development being conducted by the acquired businesses;

•  risks associated with our entrance into markets in which we have little or no prior experience and where competitors have a stronger market presence;

•  deferral of purchasing decisions by current and potential customers as they evaluate the likelihood of success of our acquisitions;

•  issuance by us of equity securities that would dilute ownership of our existing stockholders;

•  incurrence and/or assumption of significant debt, contingent liabilities and amortization expenses; and

•  loss of key employees of the acquired companies.

Failure to manage effectively our growth through acquisitions could adversely affect our growth prospects, business, results of operations and financial condition.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

      The financial statements required by this Item 8 are attached hereto as Exhibit (a)(1).

ITEM 9A.  CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

      We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act (“Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

      As of March 31, 2005, our management, including the Chief Executive Officer and the Chief Financial Officer, carried out an assessment with the participation of our Disclosure Committee, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(b) and 15d-15(b). Based upon, and as of the date of this assessment, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level because of the material weaknesses discussed below and our inability to complete our assessment of our internal control over financial reporting prior to the filing of our Form 10-K for the year ended March 31, 2005. Due to the existence of the material weaknesses described below, we performed

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additional analysis and other post-closing procedures to ensure our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP). Accordingly, management believes that the consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

Management’s Report on Internal Control Over Financial Reporting

      Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.

      Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2005. In performing our assessment of internal control over financial reporting, management used the criteria described in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

      A material weakness is a control deficiency, or a combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. We identified the following material weaknesses during our assessment of our internal control over financial reporting as of March 31, 2005:

      1. We did not maintain effective controls to restrict access to key financial applications and data. Specifically, we did not adequately segregate the duties of certain individuals in the information technology and accounting departments having access to key financial applications and data broader than that required by their roles and responsibilities, including an employee with check signing authority and another with responsibility over the custody and processing of customer payments received by mail. In addition, we did not have controls to monitor access to financial applications and data. This control deficiency did not result in an adjustment to the consolidated financial statements. However, this control deficiency could result in a misstatement in financial statement accounts or disclosures that would result in a material misstatement to annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency represents a material weakness.

      2. We did not maintain effective controls over the billing function to ensure that invoices capture all services delivered to customers and that such services are invoiced and revenue is recorded accurately and timely. Specifically, we did not have effective controls to reconcile, review and monitor revenues recorded to amounts invoiced to customers, to data in customer contracts or to customer service delivery data. This control deficiency resulted in immaterial audit adjustments to the interim and annual consolidated financial statements. In addition, this control deficiency could result in a misstatement to revenues or receivables that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency represents a material weakness.

      Because of the material weaknesses described above, management has concluded that our internal control over financial reporting was not effective as of March 31, 2005, based on the criteria in the Internal Control — Integrated Framework issued by the COSO.

      Our management’s assessment of the effectiveness of our internal control over financial reporting as of March 31, 2005 has been audited by PricewaterhouseCoopers LLP, an independent registered certified public accounting firm, as stated in their report which is included herein.

Changes in Internal Control Over Financial Reporting and Management’s Remediation Initiatives

      Management has made changes in our internal control over financial reporting during the quarter ended March 31, 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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      Our management and Audit Committee have dedicated significant resources to assessing the underlying issues giving rise to the material weaknesses identified to ensure that proper steps have been and are being taken to improve our internal control over financial reporting. We have assigned a high priority to the correction of these deficiencies and have taken and will continue to take action to ensure that our internal control over financial reporting and our disclosure controls and procedures are designed and operate effectively.

      In connection with the preparation of our Form 10-Q for the quarter ended June 30, 2004, our independent registered certified public accountants identified certain adjustments that were required to be recorded within that Form 10-Q. The adjustments to our financial statements involved the identification and resulting accounting for embedded derivatives in our 9% senior convertible notes, and the recording of certain warrants issued in connection with our underwriting agreement for the 9% senior convertible notes. Our management believes that our failure to identify these adjustments indicates the existence of certain material weaknesses in our internal control over financial reporting. As a result of the existence of those material weaknesses, our management concluded that our disclosure controls and procedures were ineffective as of June 30, September 30 and December 31, 2004.

      A number of initiatives to strengthen our internal control over financial reporting were initiated in November 2004 and have continued since then. These include:

•  Establishment of a Disclosure Committee to review periodic reports to the SEC before filing.

•  Implementation of specific additional procedures for the issuance and recording of securities.

•  Retention of a third party expert to assist management in the identification and valuation of derivatives.

•  Hiring of a dedicated individual with technical capabilities in preparing periodic filings and researching accounting and reporting matters.

      As a result of control procedures implemented, management has concluded that the reportable condition related to embedded derivatives has been fully remediated and no longer represents an internal control deficiency as of March 31, 2005.

      In connection with the material weaknesses, we are in the process of implementing the following remediation action plans:

•  With respect to the material weakness related to segregation of duties, our information technology department is in the process of testing recent enhancements to our internal security through more restrictive user access and will also implement stronger system password controls.

•  Also with respect to the material weakness related to segregation of duties, we are in the process of setting up a lockbox with our bank and directing our customers to mail payments directly to the lockbox.

•  With respect to the material weakness related to the billing function, we have retained an information technology consultant to assist us with the integration and/or reconciliation of invoices to customer service delivery data. We are also in the process of establishing policies and procedures for an independent review of our invoices to customers.

      The continued implementation of the initiatives described above is among our highest priorities. Our Audit Committee will continually assess the progress and sufficiency of these initiatives and make adjustments as and when necessary. As of the date of this report, our management believes that the plan outlined above, when completed, will remediate the material weaknesses in internal control over financial reporting as described above.

Limitations on Effectiveness

      Our management and the Audit Committee do not expect that our disclosure controls and procedures or internal control over financial reporting will prevent all errors or all instances of fraud. A control system, no

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matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control gaps and instances of fraud have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and any design may not succeed in achieving its stated goals under all potential future conditions.

      Except as disclosed above, there were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.

      PricewaterhouseCoopers LLP (PwC) serves as our independent registered certified public accounting firm.

      As of August 4, 2005, we were billed an aggregate of $1,417,000 and $384,000 by PwC for the fiscal years ended March 31, 2005 and 2004, respectively as follows:

Audit Fees

      We were billed $1,069,000 and $279,000 by PwC for professional services rendered for the audit of our annual financial statements for the fiscal years ended March 31, 2005 and 2004, respectively, and the reviews of the financial statements included in our filings on Forms 10-Q for those fiscal years.

Audit Related Fees

      We were billed $348,000 and $86,000 by PwC for audit related services, other than the audit and review services described above, for the fiscal years ended March 31, 2005 and 2004. Audit related services provided consist of work related consents provided in connection with Company registration statement for both years and for the preparation of a comfort letter in the year ended March 31, 2005.

Tax Fees

      PwC did not provide any Tax Services, other than the audit and review services described above, for the fiscal years ended March 31, 2005 and 2004.

All Other Fees

      PwC did not provide any professional services, other than the audit and review services described above, for the fiscal years ended March 31, 2005 and 2004. PwC did not provide any services related to financial information systems design and implementation during the fiscal years ended March 31, 2005 and 2004.

Audit Committee Approval

      Our Audit Committee pre-approves all services provided to us by PwC.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

      (a) List of documents filed as part of this report:

1. Financial Statements

•  Report of Independent Registered Certified Public Accounting Firm

•  Consolidated Balance Sheets as of March 31, 2005 and 2004

•  Consolidated Statements of Operations for the Years Ended March 31, 2005, 2004 and 2003

•  Consolidated Statement of Changes in Stockholders’ Equity (Deficit) for the Three Year Period Ended March 31, 2005

•  Consolidated Statements of Cash Flows for the Years Ended March 31, 2005, 2004 and 2003

•  Notes to Consolidated Financial Statements

2. Financial Statement Schedules

      All schedules have been omitted because the required information is included in the consolidated financial statements or the notes thereto, or the omitted schedules are not applicable.

3. Exhibits

Exhibit
Number			Exhibit Description
	1	.1	Form of Underwriting Agreement related to the Company’s offering of common stock on March 14, 2005 (previously filed as an exhibit to the Company’s registration statement filed on February 3, 2005)
	3	.1	Certificate of Merger of Terremark Holdings, Inc. with and into AmTec, Inc. (previously filed as an exhibit to the Company’s Registration Statement on Form S-3 filed on May 15, 2000)
	3	.2	Restated Certificate of Incorporation of the Company (previously filed as an exhibit to the Company’s Registration Statement on Form S-3 filed on May 15, 2000)
	3	.3	Certificate of Amendment to Certificate of Incorporation of the Company (previously filed as an exhibit to the Company’s Registration Statement on Form S-1 filed on December 21, 2004)
	3	.4	Restated Bylaws of the Company (previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed on November 14, 2002)
	3	.5	Certificate of Designations of Preferences of Series G Convertible Preferred Stock of the Company (previously filed as an exhibit to the Company’s Registration Statement on Form S-3 filed on May 15, 2000)
	3	.6	Certificate of Designations of Preferences of Series H Convertible Preferred Stock of the Company (previously filed as exhibit 3.5 to the Company’s Annual Report on Form 10-K filed on July 16, 2001)
	3	.7	Certificate of Designations of Preferences of Series I Convertible Preferred Stock of the Company (previously filed as an exhibit to the Company’s Registration Statement on Form S-3/ A filed on March 17, 2004)
	3	.8	Certificate of Amendment to Certificate of Incorporation of the Company (previously files as an exhibit to the Company’s current report on Form 8-K filed on May 18, 2005).
	4	.1	Specimen Stock Certificate (previously filed as exhibit to the Company’s current report on Form 8-K filed on May 18, 2005).
	4	.4	Form of Warrant for the Purchase of Common Stock (previously filed as exhibit 4.1 to the Company’s Current Report on Form 8-K filed on April 15, 2003)
	4	.5	Indenture dated June 14, 2004 including form of 9% Senior Convertible Note due 2009 (previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed on August 9, 2004)

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Exhibit
Number			Exhibit Description
	10	.1	1995 Stock Option Plan (previously filed as part of the Company’s Transition Report on Form 10-KSB for the transition period from October 1, 1994 to March 31, 1995)
	10	.2	1996 Stock Option Plan (previously filed as part of the Company’s Transition Report on Form 10-KSB for the transition period from October 1, 1994 to March 31, 1995)
	10	.3	Form of Indemnification Agreement for directors and officers of the Company (previously filed as an exhibit to the Company’s Registration Statement on Form S-3, as amended, filed on March 11, 2003)
	10	.4	Employment Agreement with Manuel Medina (previously filed as exhibit 10.6 to the Company’s Annual Report on Form 10-K filed on July 16, 2001)
	10	.5	Amendment to Employment Agreement with Manuel Medina (previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed on November 14, 2001)
	10	.7	Net Premises Lease by and between Rainbow Property Management, LLC and Coloconnection, Inc. (previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on April 15, 2003)
	10	.13	Non-qualified Stock Option Agreement with Brian K. Goodkind to purchase 1,278,205 shares of the Company’s common stock (previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2003)
	10	.14	Non-qualified Stock Option Agreement with Brian K. Goodkind to purchase 1,406,795 shares of the Company’s common stock (previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2003)
	10	.15	First Amendment to the Non-qualified Stock Option Agreement with Brian K. Goodkind to purchase 200,000 shares of the Company’s common stock (previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2003)
	10	.16	First Amendment to the Non-qualified Stock Option Agreement with Brian K. Goodkind to purchase 115,000 shares of the Company’s common stock (previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2003)
	10	.17	Amended and restated 2000 Stock Option Plan (previously filed as an exhibit to the Company’s Registration Statement on Form S-8 filed on August 19, 2004)
	10	.18	2000 Directors’ Stock Option Plan (previously filed as an exhibit to the Company’s Registration Statement on Form S-8 filed on August 19, 2002)
	10	.19	Agreement between Fundacao De Amparo A Pesquisa Do Estado De Sao Paulo — FAPESP and Terremark Latin America (Brazil) Ltda. (previously filed as an exhibit to the Company’s Registration Statement on Form S-3/ A filed on December 22, 2003)
	10	.20	Employment Agreement with Jose A. Segrera dated September 8, 2001 (previously filed as an exhibit to the Company’s Annual Report on Form 10-K filed June 30, 2003)
	10	.21	Employment Agreement with Jose E. Gonzalez dated November 2002 (previously filed as an exhibit to the Company’s Annual Report on Form 10-K filed June 30, 2003)
	10	.23	Employment Agreement with Jamie Dos Santos dated November 1, 2002 (previously filed as an exhibit to the Company’s Annual Report on Form 10-K filed June 14, 2004)
	10	.24	Employment Agreement with Marvin Wheeler dated November 1, 2002 (previously filed as an exhibit to the Company’s Annual Report on Form 10-K filed June 14, 2004)
	10	.26	Loan Agreement dated as of December 31, 2004 (the “Loan Agreement”), by and among Technology Center of the Americas, LLC, as Borrower, Citigroup Global Markets Realty Corp., as Agent and each Lender signatory thereto (previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on January 6, 2005)
	10	.27	Form of Warrant Certificate of Terremark Worldwide, Inc. issued to Citigroup Global Markets Realty Corp. (previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on January 6, 2005)

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Exhibit
Number			Exhibit Description
	10	.28	Purchase Agreement dated as of December 31, 2004, among Terremark Worldwide, Inc., as Issuer, the guarantors named therein, FMP Agency Services, LLC, as agent, and each of the purchasers named therein (previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on January 6, 2005)
	10	.29	Security Agreement dated as of December 31, 2004, by Terremark Worldwide, Inc., as Issuer, the guarantors named therein and FMP Agency Services, LLC, as Agent (previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on January 6, 2005)
	10	.30	Registration Rights Agreement dated as of December 31, 2004 among Terremark Worldwide, Inc. and Falcon Mezzanine Partners, LP, Stichting Pensioenfonds ABP and Stichting Pensioenfonds Voor De Gezondheid, Geestelijke En Maatschappelijke Belangen (the “Purchasers”) (previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on January 6, 2005)
	10	.31	Form of Warrant Certificate of Terremark Worldwide, Inc. issued to the Purchasers (previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on January 6, 2005)
	10	.32	Form of Note of Terremark Worldwide, Inc. issued to the Purchasers (previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on January 6, 2005)
	10	.33	Guaranty of Nonrecourse Obligations executed by the Company in favor of Citigroup Global Markets Realty Corp., as agent, for the benefit of the lenders to the Loan Agreement (previously filed as an exhibit to the Company’s Registration Statement on Form S-1 filed on February 3, 2005)
	10	.34	Employment Agreement with John Neville dated April 18, 2005*
	21		Subsidiaries of the Company*
	23	.1	Consent of PricewaterhouseCoopers LLP**
	31	.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a)**
	31	.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a)**
	32	.1	Certification of Chief Executive Officer pursuant to 18 USC. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
	32	.2	Certification of Chief Financial Officer pursuant to 18 USC. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**

*  Previously filed with the Form 10-K

**  Filed with this Form 10-K/A

27

SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TERREMARK WORLDWIDE, INC.

By: /s/ MANUEL D. MEDINA

Manuel D. Medina

Chairman of the Board, President and

Chief Executive Officer

(Principal Executive Officer)

Date: August 5, 2005

By: /s/ JOSE A. SEGRERA

Jose A. Segrera

Executive Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

Date: August 5, 2005

28

REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Terremark Worldwide, Inc.

      We have completed an integrated audit of Terremark Worldwide, Inc.’s 2005 consolidated financial statements and of its internal control over financial reporting as of March 31, 2005 and audits of its 2004 and 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements

      In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of changes in stockholders’ equity (deficit) and of cash flows present fairly, in all material respects, the financial position of Terremark Worldwide, Inc. and its subsidiaries at March 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2005 in conformity with accounting principles generally accepted in the United States of America. 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 of these statements in accordance with the standards of the Public Company Accounting Oversight Board (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 of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting

      Also, we have audited management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A, that Terremark Worldwide, Inc. did not maintain effective internal control over financial reporting as of March 31, 2005, because the Company did not maintain effective controls over (i) the restriction of access to key financial applications and data, and (ii) the billing function to ensure that invoices capture all services delivered to customers and that such services are invoiced and revenue is recorded accurately and timely, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit.

      We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

      A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and

F-1

directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

      A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As of March 31, 2005, the following material weaknesses have been identified and included in management’s assessment:

      1. The Company did not maintain effective controls to restrict access to key financial applications and data. Specifically, the Company did not adequately segregate the duties of certain individuals in the information technology and accounting departments having access to key financial applications and data broader than that required by their roles and responsibilities, including an employee with check signing authority and another with responsibility over the custody and processing of customer payments received by mail. In addition, the Company did not have controls to monitor access to financial applications and data. This control deficiency did not result in an adjustment to the consolidated financial statements. However, this control deficiency could result in a misstatement in financial statement accounts or disclosures that would result in a material misstatement to annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, this control deficiency represents a material weakness.

      2. The Company did not maintain effective controls over the billing function to ensure that invoices capture all services delivered to customers and that such services are invoiced and revenue is recorded accurately and timely. Specifically, the Company did not have effective controls to reconcile, review and monitor revenues recorded to amounts invoiced to customers, to data in customer contracts or to customer service delivery data. This control deficiency resulted in immaterial audit adjustments to the interim and annual consolidated financial statements. In addition, this control deficiency could result in a misstatement to revenues or receivables that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, this control deficiency represents a material weakness.

      These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2005 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

      In our report dated June 29, 2005, we stated that the Company had not reported on its assessment of the effectiveness of internal control over financial reporting and, accordingly, the scope of our work was not sufficient to enable us to express, and we did not express, an opinion on the effectiveness of the Company’s internal control over financial reporting. The Company has now reported on its assessment of the effectiveness of internal control over financial reporting and we have completed our audit thereof. Accordingly, our present report insofar as it relates to the Company’s internal control over financial reporting as of March 31, 2005, as presented herein, is different from our previous report.

F-2

      In our opinion, management’s assessment that Terremark Worldwide, Inc. did not maintain effective internal control over financial reporting as of March 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by the COSO. Also, in our opinion, because of the effects of the material weaknesses described above on the achievement of the objectives of the control criteria, Terremark Worldwide, Inc. has not maintained effective internal control over financial reporting as of March 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the COSO.

/s/ PricewaterhouseCoopers LLP

PRICEWATERHOUSECOOPERS LLP

Miami, Florida

July 28, 2005

F-3

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		March 31,
		2005			2004
ASSETS
Current assets:
Cash and cash equivalents		$	44,001,144		$	4,378,614
Restricted cash			2,185,321			—
Accounts receivable, net of allowance for doubtful accounts of $200,000 each year			4,388,889			3,577,144
Current portion of capital lease receivable			2,280,000			—
Note receivable			—			2,285,000
Prepaid and other current assets			942,575			1,115,230
	Total current assets		53,797,929			11,355,988
Investment in unconsolidated entities, net			—			725,319
Restricted cash			5,641,531			789,476
Property and equipment, net			123,406,321			53,897,716
Debt issuance costs, net of accumulated amortization of $1,007,734 and $121,691			8,797,296			175,363
Other assets			1,182,716			488,971
Capital lease receivable, net of current portion			6,080,001			—
Goodwill			9,999,870			9,999,870
	Total assets	$	208,905,664		$	77,432,703
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Current portion of mortgage payable		$	692,570		$	—
Current portion of notes payable			4,489,945			9,194,145
Construction payables			427,752			1,363,554
Accounts payable and accrued expenses			8,914,578			7,067,319
Current portion of capital lease obligations			1,037,459			1,799,726
Interest payable			2,680,882			1,952,978
Current portion of unearned interest			724,686			—
Convertible debt			—			250,000
	Total current liabilities		18,967,872			21,627,722
Mortgage payable, less current portion			46,034,024			—
Convertible debt			53,972,558			36,895,239
Derivatives embedded within convertible debt, at estimated fair value			20,116,618			—
Notes payable, less current portion			23,664,142			31,311,894
Deferred rent			2,001,789			6,938,454
Unearned interest under capital lease receivables			898,778			—
Capital lease obligations, less current portion			434,441			105,886
Deferred revenue			1,994,598			2,686,396
Series H redeemable convertible preferred stock: $.001 par value, 294 shares issued and outstanding, at liquidation value			616,705			586,718
	Total liabilities		168,701,525			100,152,309
Minority interest			28,090			—
Commitments and contingencies			—			—
Stockholder’s equity (deficit):
Series G convertible preferred stock: $.001 par value, 20 shares issued and outstanding			—			1
Series I convertible preferred stock: $.001 par value, 383 shares issued and outstanding (liquidation value of approximately $10.5 million and $10.0 million)			1			1
Common stock: $.001 par value, 100,000,000 shares authorized; 42,587,321 and 31,122,748 shares issued			42,587			31,123
Common stock warrants			13,599,704			3,642,006
Common stock options			1,538,260			1,545,375
Additional paid-in capital			279,063,085			213,876,605
Accumulated deficit			(246,674,069	)		(236,814,717	)
Accumulated other comprehensive loss			(172,882	)		—
Treasury stock: 865,202 shares			(7,220,637	)		—
Note receivable — related party			—			(5,000,000	)
	Total stockholders’ equity (deficit)		40,176,049			(22,719,606	)
	Total liabilities and stockholders’ equity (deficit)	$	208,905,664		$	77,432,703

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

F-4

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

				For the Year Ended March 31,
				2005			2004			2003
Revenues
	Data center — services			$	34,985,343		$	17,034,377		$	11,032,985
	Data center — technology infrastructure build-out				11,832,745			—			—
	Construction contracts and fees				1,329,526			1,179,362			3,660,718
		Operating revenues			48,147,614			18,213,739			14,693,703
Expenses
	Data center operations — services, excluding depreciation				26,377,861			16,413,021			11,234,833
	Data center operations — technology infrastructure build-out				9,711,022			—			—
	Construction contract expenses, excluding depreciation				809,372			918,022			2,968,142
	General and administrative				13,243,073			13,336,400			12,507,121
	Sales and marketing				5,402,886			3,424,411			4,200,858
	Depreciation and amortization				5,697,071			4,698,292			5,092,749
	Impairment of long-lived assets and goodwill				813,073			—			4,020,300
		Operating expenses			62,054,358			38,790,146			40,024,003
			Loss from operations		(13,906,744	)		(20,576,407	)		(25,330,300	)
Other income (expenses)
	Change in fair value of derivatives embedded within convertible debt				15,283,500			—			—
	Gain on debt restructuring and extinguishment, net				3,420,956			8,475,000			—
	Inducement on debt conversion				—			—			(4,871,245	)
	Interest expense				(15,493,610	)		(14,624,922	)		(11,007,683	)
	Interest income				666,286			131,548			136,278
	Other, net				170,260			4,104,204			(154,355	)
		Total other income (expenses)			4,047,392			(1,914,170	)		(15,897,005	)
			Loss before income taxes		(9,859,352	)		(22,490,577	)		(41,227,305	)
	Income taxes				—			—			—
			Net loss		(9,859,352	)		(22,490,577	)		(41,227,305	)
Preferred dividend					(915,250	)		(1,158,244	)		(160,000	)
Net loss attributable to common shareholders				$	(10,774,602	)	$	(23,648,821	)	$	(41,387,305	)
Basic and diluted net loss per common share				$	(0.31	)	$	(0.78	)	$	(1.76	)
Weighted average common shares outstanding					35,147,503			30,502,819			23,520,931

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

F-5

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

						Common Stock Par
	Preferred			Preferred		Value $.001
	Stock			Stock								Common Stock
	Series G			Series I		Issued Shares			Amount			Warrants
Balance at March 31, 2002	$	1		$	—		20,088,225		$	20,088		$	2,879,413
Sale of Common stock		—			—		3,314,882			3,315			—
Retirement of treasury shares		—			—		(140,000	)		(140	)		—
Warrants issued		—			—		—			—			1,221,979
Exercise of warrants		—			—		81,800			82			(364,738	)
Warrants expired		—			—		—			—			(1,879,073	)
Conversion of debt		—			—		2,282,779			2,283			—
Forfeiture of stock options		—			—		—			—			—
Net loss		—			—		—			—			—
Balance at March 31, 2003		1			—		25,627,686			25,628			1,857,581
Conversion of debt		—			—		5,121,183			5,121			—
Exercise of stock options		—			—		7,727			8			—
Warrants issued		—			—		—			—			644,597
Exercise of warrants		—			—		950			1			(3,971	)
Warrants expired		—			—		—			—			(528,449	)
Beneficial conversion feature on issuance of convertible debentures		—			—		—			—			—
Stock Options issued		—			—		—			—			1,672,248
Series I Preferred stock issued		—			—		—			—			—
Common stock issued		—			1		365,202			365			—
Net loss		—			—		—			—			—
Balance at March 31, 2004		1			1		31,122,748			31,123			3,642,006
Sale of Common stock		—			—		6,301,778			6,302			—
Conversion of debt		—			—		5,524,927			5,525			—
Conversion of preferred stock		(1	)		—		281,089			281			—
Exercise of stock options		—			—		33,667			33			—
Warrants issued		—			—		—			—			10,365,483
Exercise of warrants		—			—		35,162			35			(261,640	)
Warrants expired		—					—			—			(146,145	)
Preferred stock issuance costs		—			—		—			—			—
Dividends on preferred stock		—			—		—			—			—
Issuance of common stock in lieu of cash — preferred stock dividend		—					61,685			62			—
Stock tendered in payment of loan and retired		—			—		(773,735	)		(774	)		—
Net assets acquired from NAP Madrid		—			—		—			—			—
Forfeiture of stock options		—			—		—			—			—
Foreign currency translation adjustment		—			—		—			—			—
Net loss		—			—		—			—			—
Balance at March 31, 2005	$	—		$	1		42,587,321		$	42,587		$	13,599,704

[Additional columns below]

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

													Accumulated						Notes
				Common			Additional						Other						Receivable
	Common			Stock			Paid-In			Accumulated			Comprehensive			Treasury			Related
	Stock Options			Subscriptions			Capital			Deficit			Loss			Stock			Party
Balance at March 31, 2002	$	1,566,801		$	950,000		$	125,832,913		$	(173,096,835	)	$	—		$	(2,428,125	)	$	(5,000,000	)
Sale of Common stock		—			(950,000	)		21,424,995			—			—			—			—
Retirement of treasury shares		—			—			(2,427,985	)		—			—			2,428,125			—
Warrants issued		—			—			—			—			—			—			—
Exercise of warrants		—			—			372,836			—			—			—			—
Warrants expired		—			—			1,879,073			—			—			—			—
Conversion of debt		—			—			22,331,599			—			—			—			—
Forfeiture of stock options		(21,426	)		—			21,426			—			—			—			—
Net loss		—			—			—			(41,227,305	)					—
Balance at March 31, 2003		1,545,375			—			169,434,857			(214,324,140	)		—			—		$	(5,000,000	)
Conversion of debt		—			—			24,303,755			—			—			—			—
Exercise of stock options		—			—			38,397			—			—			—			—
Warrants issued		—			—			(309,998	)		—			—			—			—
Exercise of warrants		—			—			8,529			—			—			—			—
Warrants expired		—			—			528,449			—			—			—			—
Beneficial conversion feature on issuance of convertible debentures		—			—			9,500,000			—			—			—			—
Stock Options issued		—			—			2,185,463			—			—			—			—
Series I Preferred stock issued		—			—			8,187,518			—			—			—			—
Common stock issued		—			—			(365	)		—			—			—			—
Net loss		—			—			—			(22,490,577	)		—			—			—
Balance at March 31, 2004		1,545,375			—			213,876,605			(236,814,717	)		—			—		$	(5,000,000	)
Sale of Common stock		—			—			42,587,192			—			—			—			—
Conversion of debt		—			—			28,030,500			—			—			—			—
Conversion of preferred stock		—			—			1,448			—			—			—			—
Exercise of stock options		—			—			122,720			—			—			—			—
Warrants issued		—			—			—			—			—			—			—
Exercise of warrants		—			—			263,603			—			—			—			—
Warrants expired		—			—			146,145			—			—			—			—
Preferred stock issuance costs		—			—			(587,858	)		—			—			—			—
Dividends on preferred stock		—			—			(795,249	)		—			—			—			—
Issuance of common stock in lieu of cash — preferred stock dividend		—			—			361,997			—			—			—			—
Stock tendered in payment of loan and retired		—			—			(4,951,133	)		—			—			—			5,000,000
Net assets acquired from NAP Madrid		—			—			—			—			—			(7,220,637	)		—
Forfeiture of stock options		(7,115	)		—			7,115			—			—			—			—
Foreign currency translation adjustment		—			—			—			—			(172,882	)		—			—
Net loss		—			—			—			(9,859,352	)		—			—			—
Balance at March 31, 2005	$	1,538,260		$	—		$	279,063,085		$	(246,674,069	)	$	(172,882	)	$	(7,220,637	)	$	—

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

F-6

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

					For the Year Ended March 31,
					2005			2004			2003
Cash flows from operating activities:
	Net loss				$	(9,859,352	)	$	(22,490,577	)	$	(41,227,305	)
	Adjustments to reconcile net loss to net cash used in operating activities
		Depreciation and amortization of long-lived assets				5,697,071			4,698,292			5,092,749
		Change in estimated fair value of embedded derivatives				(15,283,500	)		—			—
		Accretion on convertible debt and mortgage payable				3,303,168			—			—
		Amortization of beneficial conversion feature on issuance of convertible debentures				904,761			8,595,239			—
		Amortization of debt issue costs				1,402,010			130,483			908,321
		Provision for bad debt				317,603			167,135			197,774
		Equity issued for services				—			—			313,968
		Impairment of long-lived assets				813,073			—			4,020,300
		Stock-based compensation				—			2,185,463			—
		Inducement on debt conversion expense				—			—			4,871,245
		Gain on debt restructuring and extinguishment				(3,626,956	)		(8,475,000	)		—
		Other, net				(44,425	)		74,034			312,252
		Warrants issued for services				202,550			—			—
		(Increase) decrease in:
			Accounts receivable			(1,129,348	)		(3,220,339	)		2,263,100
			Capital lease receivable, net of unearned interest			(6,736,537	)		—			—
			Restricted cash			(1,355,975	)		—			—
			Other assets			(984,947	)		279,530			(123,369	)
		Increase (decrease) in:
			Accounts payable and accrued expenses			(1,857,528	)		(1,166,016	)		649,006
			Interest payable			1,001,428			(1,526,664	)		2,947,252
			Deferred revenue			(691,798	)		1,715,246			155,324
			Net assets/liabilities of discontinued operations			—			(1,170,980	)		175,521
			Construction payables			(820,146	)		—			—
			Deferred rent			4,387,360			4,327,831			1,135,448
				Net cash used in operating activities		(24,361,488	)		(15,876,323	)		(18,308,414	)
Cash flows from investing activities:
	Restricted cash					(4,000,000	)		(20,571	)		(11,332	)
	Purchase of property and equipment					(10,508,261	)		(4,054,741	)		(994,892	)
	Investment in unconsolidated entities					—			—			(337,812	)
	Acquisition of a majority interest in NAP Madrid					(2,537,627	)		—			—
	Acquisition of TECOTA, net of cash acquired					(73,936,374	)		—			—
	Acquisition of interest rate cap agreement					(100,000	)		—			—
	Proceeds from notes receivable					50,000			—			—
				Net cash used in investing activities		(91,032,262	)		(4,075,312	)		(1,344,036	)
Cash flows from financing activities:
Increase in restricted cash						(1,681,401	)		—			—
Proceeds from mortgage loan and warrants						49,000,000			750,000			10,032,220
Issuance of senior secured notes and warrants						30,000,000			—			—
Increase (decrease) in construction payables						—			1,215,505			(2,948,554	)
Payments on loans						(36,667,782	)		(2,996,517	)		(2,295,138	)
Issuance of convertible debt						86,257,312			19,550,000			—
Payments on convertible debt						(10,131,800	)		(1,605,000	)		—
Debt issuance costs						(6,007,370	)		—			—
Proceeds from issuance of common stock						42,593,594			—			—
Proceeds from sale of preferred stock						2,131,800			7,309,765			—
Preferred stock issuance costs						(587,860	)		—			—
Payments of preferred stock dividends						(433,253	)		—			—
Other borrowings						850,262			—			—
Payments under capital lease obligations						(433,712	)		(1,334,325	)		(975,433	)
Proceeds from exercise of stock options and warrants						124,760			32,631			9,180
Sale of common stock and warrants						—			—			16,955,287
Proceeds from exercise of preferred stock conversions						1,730			—			—
				Net cash provided by financing activities		155,016,280			22,922,059			20,777,562
				Net increase in cash		39,622,530			2,970,424			1,125,112
	Cash and cash equivalents at beginning of period					4,378,614			1,408,190			283,078
	Cash and cash equivalents at end of period				$	44,001,144		$	4,378,614		$	1,408,190

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

F-7

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Business and Organization

      Terremark Worldwide, Inc. (together with its subsidiaries, the “Company” or “Terremark”) operates Internet exchange points from which it provides colocation, interconnection and managed services to government entities, carriers, Internet service providers, network service providers and enterprises. The Company’s Internet exchange point facilities, or IXs, are located at strategic locations in Miami, Florida; Santa Clara, California; Madrid, Spain; and São Paulo, Brazil. Those facilities serve as locations where networks meet to interconnect and exchange Internet traffic, including data, voice, audio and video traffic. The Company’s primary facility, the NAP of the Americas, in Miami, Florida is designed and built to disaster-resistant standards with maximum security to house mission-critical systems infrastructure.

2. Summary of Significant Accounting Policies

      A summary of significant accounting principles and practices used by the Company in preparing its consolidated financial statements follows.

      The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company balances and transactions have been eliminated.

Loss per share

      Effective May 16, 2005, the Company’s stockholders approved a one for ten reverse stock split. All share and per share information has been restated to account for the one for ten reverse stock split.

      Basic EPS is calculated as income or loss available to common stockholders divided by the weighted average number of common shares outstanding during the period. If the effect is dilutive, participating securities that are convertible into common stock are included in the computation of basic EPS. Diluted EPS is calculated using the “if converted” method for common stock equivalents.

      The Company’s 9% Senior Convertible Notes (the “Senior Convertible Notes”) contain contingent interest provisions which allow the holders of the Senior Convertible Notes to participate in any dividends declared on the Company’s common stock. Further, the Company’s Series H and I preferred stock contain participation rights which entitle the holders to receive dividends in the event the Company declares dividends on its common stock. Accordingly, the Senior Convertible Notes and the Series H and I preferred stock are considered participating securities. As a result of the number of shares of the Company’s common stock currently outstanding, these participating securities have not had a significant impact on the calculation of earnings per share. Furthermore, these participating securities can only impact the calculation of earnings per share in periods when the Company presents net income.

Use of estimates

      The Company prepares its financial statements in conformity with generally accepted accounting principles in the United States of America. These principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications

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

F-8

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Cash and cash equivalents

      The Company considers all amounts held in highly liquid instruments with an original purchased maturity of three months or less to be cash equivalents. Cash and cash equivalents include cash balances maintained in the operating and interest-bearing money market accounts at the Company’s banks.

Restricted cash

      Restricted cash represents cash required to be deposited with financial institutions in connection with certain loan agreements and operating leases.

Property and equipment

      Property and equipment includes acquired assets and those accounted for under capital leases. Acquired assets are recorded at cost and assets under capital lease agreements are recorded at the net present value of minimum lease payments. Property and equipment, including leased assets, are depreciated using the straight-line method over their estimated useful lives, as follows:

Building	40 years
Improvements	5 - 20  years
Computer software	3 years
Furniture, fixture and equipment	5 - 20  years

      Costs for improvements and betterments that extend the life of assets are capitalized. Maintenance and repair expenditures are expensed as incurred.

Goodwill and Impairment of long-lived assets and long-lived assets to be disposed of

      Goodwill and intangible assets that have indefinite lives are not amortized but rather are tested at least annually for impairment or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be fully recoverable. The goodwill impairment test involves a two-step approach. Initially the fair values of the reporting units are compared with their carrying amount, including goodwill, to identify potential impairment. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized for the excess, if any, of the carrying value of goodwill over the implied fair value of goodwill. Intangible assets that have finite useful lives are amortized over their useful lives.

      Goodwill represents the carrying amount ($9,999,870) of the excess purchase price over the fair value of identifiable net assets acquired in conjunction with the acquisition of a corporation holding rights to develop and manage facilities catering to the telecommunications industry. We performed our annual tests for impairment in the quarters ended March 31, 2005 and 2004, and concluded that there were no impairments.

      Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Such events and circumstances include, but are not limited to, prolonged industry downturns, significant decline in our market value and significant reductions in our projected cash flows. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to estimated undiscounted future net cash flows expected to be generated by the asset. Significant judgments and assumptions are required in the forecast of future operating results used in the preparation of the estimated future cash flows, including long-term forecasts of the number of additional customer contracts, profit margins, terminal growth rates and discounted rates. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.

F-9

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Rent expense

      Rent expense under operating leases is recorded on the straight-line method based on total contracted amounts. Differences between amounts contractually due and that reported are included in deferred rent.

Fair value of financial instruments

      The Company estimates the fair value of financial instruments through the use of public market prices, quotes from financial institutions, discounted cash flow analyses and other available information. Judgment is required in interpreting data to develop estimates of market value and, accordingly, amounts are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The Company does not hold its financial instruments for trading or speculative purposes.

      The Company’s short-term financial instruments, including cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses, construction payables and other liabilities, consist primarily of instruments without extended maturities, the fair value of which, based on management’s estimates, equaled their book value. The fair value of capital lease obligations is based on management estimates and equaled their book value due to obligations with similar interest rates and maturities. The fair value of the Company’s redeemable preferred stock is estimated to be its liquidation value, which includes accumulated but unpaid dividends. The fair value of other financial instruments the Company held for which it is practicable to estimate such value is as follows:

	March 31, 2005				March 31, 2004
	Book Value		Fair Value		Book Value		Fair Value
Mortgage payable including current portion	$	46,726,594	$	48,822,510	$	—	$	—
Notes payable, including current portion		28,154,087		25,572,448		40,506,039		30,978,196
Convertible debt		53,972,558		75,350,377		37,145,239		36,895,239

      As of March 31, 2005 the fair value of the Company’s notes payable and convertible debentures was based on discounted cash flows using a discount rate of approximately 13%. As of March 31, 2005, the fair value of the mortgage payable was estimated as equal to their unpaid principal balance due to its floating interest rate. As of March 31, 2004, fair value of the Company’s notes payable was based on discounted cash flows using a discount rate of 10%.

      As of March 31, 2004, the fair value of convertible debentures was estimated as equal to their book value due to obligations or borrowings with similar interest rates, maturities and extent of collateralization.

Revenue and allowance for bad debts

      Revenue is recognized when there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection of the receivable is reasonably assured. The Company assesses collection based on a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. The Company does not request collateral from customers. If the Company determines that collection is not reasonably assured, the Company defers the fee and recognizes revenue at the time collection becomes reasonably assured, which is generally upon receipt of cash. The Company accounts for data center revenues in accordance with Emerging Issues Task Force Issue No. 00-21 “Revenue Arrangements with Multiple Deliverables” which provides guidance on separating multiple element revenue arrangements into separate units of accounting.

      Data center revenues consist of monthly recurring fees for colocation, exchange point, and managed services fees. It also includes monthly rental income for unconditioned space in our Miami facility. Revenues

F-10

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

from colocation and exchange point services, as well as rental income for unconditioned space, are recognized ratably over the term of the contract. Installation fees are deferred and recognized ratably over the term of the related contract. Managed services fees are recognized in the period in which the services are provided.

      From time to time, the Company enters into outright sales or sales-type lease contracts for technology infrastructure build-outs that include procurement, installation and configuration of specialized equipment. Due to the typically short-term nature of these types of services, the Company records revenues under the completed contract method, whereby costs and related revenues are deferred in the balance sheet until services are delivered and accepted by the customer. Contract costs deferred are costs incurred for assets, such as costs for the purchase of materials and production equipment, under fixed price contracts. For these types of services, labor and other general and administrative costs are not significant and are included as period charges.

      Pursuant to an outright sale contract, all rights and title to the equipment and infrastructure are transferred to the customer. In connection with an outright sale, the Company recognizes the sale amount as revenue and the cost basis of the equipment and infrastructure is charged to cost of infrastructure build-out.

      Lease contracts qualifying for capital lease treatment are accounted for as sales-type leases. For sales-type lease transactions, the Company recognizes as revenue the net present value of the future minimum lease payments. The cost basis of the equipment and infrastructure is charged to cost of infrastructure build-outs. During the life of the lease, the Company recognizes as other income in each respective period, that portion of each periodic lease payment deemed to be attributable to interest income. Interest income from sales-type leases of approximately $281,000 is included in revenue for the year ended March 31, 2005. The balance of each periodic lease payment, representing principal repayment, is recognized as a reduction to capital lease receivable.

      Revenues from construction contracts are recognized on the percentage-of-completion method, measured by the percentage of costs incurred to date to total estimated costs for each contract. Construction contract expenses costs include all direct material and labor costs and indirect costs related to contract performance such as indirect labor, supplies, tools, and repairs. Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions can be reasonably estimated. Accordingly, it is possible the current estimates relating to completion cost and profitability of its uncompleted contracts will vary from actual results. Revenues from construction related fees are recognized in the period in which the services are provided.

      Management analyzes accounts receivable and analyzes current economic news and trends, historical bad debts, customer concentrations, customer credit-worthiness and changes in customer payment terms when evaluating revenue recognition and the adequacy of the allowance for bad debts.

Income taxes

      Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce tax assets to the amounts expected to be realized.

F-11

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Beneficial conversion feature

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

Derivatives

      The Company does not hold or issue derivative instruments for trading purposes. However, the Company’s 9% Senior Convertible Notes due June 15, 2009 (the “Senior Convertible Notes”) contain embedded derivatives that require separate valuation from the Senior Convertible Notes. The Company recognizes these derivatives as liabilities in its balance sheet and measures them at their estimated fair value, and recognizes changes in their estimated fair value in earnings in the period of change.

      The Company, with the assistance of a third party, estimates the fair value of its embedded derivatives using available market information and appropriate valuation methodologies. These embedded derivatives derive their value primarily based on changes in the price and volatility of the Company’s common stock. Over the life of the Senior Convertible Notes, given the historical volatility of the Company’s common stock, changes in the estimated fair value of the embedded derivatives are expected to have a material effect on our results of operations. Furthermore, the Company has estimated the fair value of these embedded derivatives using a theoretical model based on the historical volatility of its common stock over the past year. If an active trading market develops for the Senior Convertible Notes or the Company is able to find comparable market data, it may in the future be able to use actual market data to adjust the estimated fair value of these embedded derivatives. Such adjustment could be significant and would be accounted for prospectively.

      Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company may eventually pay to settle these embedded derivatives.

      On December 31, 2004, the Company paid $100,000 to enter into a rate cap protection agreement, a derivative hedge against increases in interest rates. The agreement capped interest rates on the $49 million mortgage payable for the four-year period for which the rate cap protection is in effect.

      The Company has designated this interest rate cap agreement as a cash flow hedge. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is recorded in accumulated other comprehensive loss, a separate component of stockholders’ equity (deficit), and reclassified into earnings in the period during which the hedge transaction affects earnings. The portion of the hedge which is not effective is immediately reflected in other income and expenses. Management will assess, at least quarterly, whether the derivative item is effective in offsetting the changes in fair value or cash flows of the hedged transaction. Any change in fair value resulting from ineffectiveness will be recognized in current period earnings.

Significant concentrations

      The Company’s two largest customers accounted for approximately 42% and 12%, respectively, of data center revenues for the year ended March 31, 2005. Two customers accounted for approximately 14% and 10% of data center revenues for the year ended March 31, 2004.

F-12

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Stock-based compensation

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

      The following table presents what the net loss and net loss per share would have been had the Company accounted for employee stock based compensation using the fair value method:

	For the Year Ended March 31
	2005			2004			2003
Net loss attributable to common shareholders as reported	$	(10,774,602	)	$	(23,648,821	)	$	(41,387,305	)
Stock-based compensation expense included in net loss		—			2,185,463			—
Stock-based compensation expense if the fair value method had been adopted		(2,112,914	)		(3,288,790	)		(4,028,184	)
Pro forma net loss attributable to common shareholders		(12,887,516	)		(24,752,148	)		(45,415,489	)
Loss per common share — as reported	$	(0.31	)	$	(0.78	)	$	(1.76	)
Loss per common share — pro forma		(0.37	)		(0.81	)		(1.93	)

      Fair value calculations for employee grants were made using the Black-Scholes option pricing model with the following weighted average assumptions:

	2005		2004		2003
Risk Free Rate		2.87% - 4.33%		2.14% - 3.50%		2.65% - 4.84%
Volatility		126% - 137%		150%		135% - 150%
Expected Life		5 years		5 years		5 years
Expected Dividends		0%		0%		0%

Stock warrants

      The Company uses the fair value method to value warrants granted to non-employees. Some warrants are vested over time and some are vested upon issuance. The Company determined the fair value for non-employee warrants using the Black-Scholes option-pricing model with the same assumption used for employee grants, except for expected life which was assumed to be between 1 and 7 years. When warrants to acquire the Company’s common stock are issued in connection with the sale of debt or other securities, aggregate proceeds from the sale of the warrants and other securities are allocated among all instruments issued based on their relative fair market values. Any resulting discount from the face value of debt is amortized to interest expense using the effective interest method over the term of the debt.

Minority interest

      Minority interest represents the minority shareholder interest in the book value of NAP Madrid’s net assets.

Other comprehensive loss

      Other comprehensive loss consists of net loss and foreign currency translation adjustments and changes in the value of any effective portion of the interest rate cap agreement designated as a cash flow hedge, and is presented in the accompanying consolidated statement of stockholders’ equity (deficit).

F-13

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Recent accounting standards

      In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment.” SFAS No. 123(R) revises SFAS No. 123, “Accounting for Stock-Based Compensation” which is effective for the Company’s reporting periods beginning after April 1, 2006. Management is currently considering the financial accounting, income tax and internal control implications of SFAS No. 123(R).

      In May 2003, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. In November 2003, the FASB issued FASB Staff Position No. 150-3 which deferred the measurement provisions of SFAS No. 150 indefinitely for certain mandatory redeemable non-controlling interests that were issued before November 5, 2003. The FASB plans to reconsider implementation issues and, perhaps, classification or measurement guidance for those non-controlling interests during the deferral period. In 2003, the Company applied certain disclosure requirements of SFAS No. 150. To date, the impact of the effective provisions of SFAS No. 150 has been the presentation of the Series H redeemable preferred stock as a liability. While the effective date of certain elements of SFAS No. 150 has been deferred, the adoption of SFAS 150 when finalized is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

      In June 2004, the FASB issued EITF Issue 03-1 “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” EITF Issue 03-1 establishes a common approach to evaluating other-than-temporary impairment to investments in an effort to reduce the ambiguity in impairment methodology found in APB Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock” and FASB No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, which has resulted in inconsistent application. In September 2004, the FASB issued FASB Staff Position EITF Issue 03-1-1, which deferred the effective date for the measurement and recognition guidance clarified in EITF Issue 03-1 indefinitely; however, the disclosure requirements remain effective for fiscal years ending after June 15, 2004. While the effective date for certain elements of EITF Issue 03-1 have been deferred, the adoption of EITF Issue 03-1 when finalized in its current form is not expected to have a material impact on our financial position, results of operations or cash flows.

      In March 2004, the Emerging Issues Task Force (“EITF”) of the FASB approved EITF Issue 03-6, “Participating Securities and the Two — Class Method under FAS 128.” EITF Issue 03-6 supersedes the guidance in Topic No. D-95, “Effect of Participating Convertible Securities on the Computation of Basic Earnings per Share”, and requires the use of the two-class method for participating securities. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. In addition, EITF Issue 03-6 addresses other forms of participating securities, including options, warrants, forwards and other contracts to issue an entity’s common stock, with the exception of stock based compensation (unvested options and restricted stock) subject to the provisions of Accounting Principles Board (“APB”) Opinion No. 25 and SFAS No. 123. EITF Issue 03-6 is effective for reporting periods beginning after March 31, 2004 and should be applied by restating previously reported earnings per share. The adoption of EITF Issue 03-6 did not have an impact on the Company’s financial position or results of operations for the year ended March 31, 2005.

3. Acquisitions

TECOTA

      From February 23, 2001 until December 31, 2004, the Company owned a 0.84% interest in Technology Center of the Americas, LLC (“TECOTA”), the entity that owns the building in which the NAP of the

F-14

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Americas is housed (“NAP of the Americas building”). In July 2004, the Company entered into an agreement under which it assumed the obligation to purchase the other outstanding equity interests in TECOTA. On December 31, 2004, the Company completed the purchase of those other outstanding equity interests such that TECOTA became a wholly-owned subsidiary. In connection with this purchase, the Company paid approximately $40.0 million for the equity interests and repaid an approximately $35.0 million mortgage to which the NAP of the Americas building was subject. The Company allocated the purchase price based upon the fair value of assets acquired and liabilities assumed. The following is an allocation of the purchase price and a reconciliation of payments made:

Assets
Cash	$	1,574,000
Other current assets		383,000
Land and building		64,973,000
Liabilities
Accounts payable		(462,000	)
Fair value of net assets acquired		66,468,000
Adjustments:
Write off of Terremark’s deferred rent liability to TECOTA		9,324,000
Terremark’s partnership interest in TECOTA under cost method		(392,000	)
Repayment of mortgage		(35,736,000	)
Cash paid to former TECOTA partners	$	39,664,000

      The following unaudited pro forma financial information of the Company has been presented as if the acquisition of TECOTA had occurred as of April 1:

	2004			2003
Revenues	$	50,200,000		$	20,900,000
Net loss	$	11,800,000		$	28,500,000
Basic and diluted net loss per common share	$	(0.35	)	$	(0.94	)

      The Company financed the purchase of the equity interests and repayment of the mortgage from two sources. The Company obtained a $49.0 million first mortgage loan from CitiGroup Global Markets Realty Corp. Simultaneously, it issued Senior Secured Notes in an aggregate principal amount equal to $30.0 million due March 2009 (the “Senior Secured Notes”) and sold 306,044 shares of common stock valued at $2.0 million to Falcon Mezzanine Partners, LP and its co-investment partners, Stichting Pensioenfonds Voor De Gezond-Heid Geestelijke En Maatschappelijke Belangen and Stichting Pensioenfonds ABP, two funds affiliated with AlpInvest Partners (“the Falcon investors”).

NAP Madrid

      In June 2002, the Company entered into an exclusive agreement with the Comunidad Autonoma de Madrid (the “Comunidad”) to develop and operate carrier-neutral network access points in Spain. As part of that agreement, the parties formed NAP de las Americas — Madrid S.A. (“NAP Madrid”) to own and operate carrier-neutral IXs in Spain, modeled after the NAP of the Americas. The shareholders were the Comunidad through its Instituto Madrileno de Desarrollo (“IMADE”), the Camara Oficial de Comercio e Industria de Madrid, Red Electrica Telecomunicaciones, S.A., Telvent Sistemas y Redes S.A., a subsidiary of

F-15

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Abengoa S.A., and Centro de Transportes de Coslada, S.A. (“CTC”). At the time NAP Madrid was formed, the Company owned 1% of its equity, which was subsequently increased to 10%.

      In May 2004, the Company purchased the 20% interest in NAP Madrid owned by Telvent Sistemas y Redes S.A. for approximately $550,000. In June 2004, the Company purchased the 20% interest in this entity owned by Red Electrica Telecomunicaciones, S.A. for approximately $634,000. In July 2004, the Company purchased the 30% interest in NAP Madrid owned by CTC and IMADE, for approximately $1.4 million. As a result of these transactions, the Company owns an 80% equity interest in NAP Madrid. The Company’s accounts as of March 31, 2005 include the assets and liabilities of NAP Madrid, as well as the 20% minority interest. The assets of NAP Madrid primarily consist of 870,000 shares of Terremark’s common stock, which are accounted for as treasury stock at cost. The liabilities of NAP Madrid consist primarily of a bank loan with a balance of 3.5 million Euros ($4.5 million at the March 31, 2005 exchange rate). The results of operations of NAP Madrid from July 1, 2004 have been included in the accompanying condensed consolidated statement of operations.

      Because it had not commenced significant operations and had no customers or employees when the above transactions were consummated, the Company concluded that the assets acquired do not constitute a business. The Company allocated the purchase price based upon the fair value of assets acquired and liabilities assumed. The following is an allocation of the aggregate purchase price:

Assets
Equipment	$	204,040
Terremark stock		7,220,637
Liabilities
Notes payable, current		(3,708,705	)
Accounts payable and accrued expenses		(677,444	)
Minority Interests		(167,466	)
Net Assets	$	2,871,062
Previous equity ownership		(333,435	)
Cash paid for acquisition	$	2,537,627

4. Restricted cash consists of:

	March 31,
	2005			2004
Capital improvements reserve	$	4,000,000		$	—
Security deposits under bank loan agreement		1,681,400			—
Security deposits under operating leases		1,641,531			789,476
Escrow deposits under mortgage loan agreement		503,921			—
		7,826,852			789,476
Less: current portion		(2,185,321	)		—
	$	5,641,531		$	789,476

F-16

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5. Property and Equipment

      Property and equipment consist of the following:

	March 31,
	2005			2004
Land	$	10,393,877		$	—
Building and improvements		96,643,573			50,992,419
Furniture, equipment and software, including $958,230 and $4,530,101 in capital leases		34,479,387			15,472,428
		141,516,837			66,464,847
Less accumulated depreciation, including $192,959 and $3,205,036 in capital leases		(18,110,516	)		(12,650,402	)
		123,406,321			53,814,445
Equipment held for installation		—			83,271
	$	123,406,321		$	53,897,716

      Property and equipment at March 31, 2005 and 2004 include approximately $120.0 million and $53.2 million, respectively, in assets related to the NAP of the Americas and its building. These amounts are net of accumulated depreciation.

6. Mortgage Payable

      In connection with the purchase of TECOTA, the Company obtained a $49.0 million loan from CitiGroup Global Markets Realty Corp., $4.0 million of which is restricted and can only be used to fund customer related capital improvements made to the NAP of the Americas in Miami. This loan is collateralized by a first mortgage on the NAP of the Americas building and a security interest in all then existing building improvements that Terremark has made to the building, certain of the Company’s deposit accounts and any cash flows generated from customers by virtue of their activity at the NAP of the Americas building. The loan bears interest at a rate per annum equal to the greater of 6.75% or LIBOR plus 4.75%, and matures in February 2009. This mortgage loan includes numerous covenants imposing significant financial and operating restrictions on Terremark’s business.

      In connection with this financing, the Company issued to Citigroup Global Markets Realty Corp., for no additional consideration, warrants to purchase an aggregate of 500,000 shares of the Company’s common stock. Those warrants expire on December 31, 2011 and are divided into four equal tranches that differ only in respect of the applicable exercise prices, which are $6.80, $7.40, $8.10 and $8.70, respectively. The warrants were valued by an independent appraiser at approximately $2,200,000, which was recorded as a discount to the debt principal. Proceeds from the issuance of the mortgage note payable and the warrants were allocated based on their relative fair values. The costs related to the issuance of the mortgage loan were capitalized and amounted to approximately $1,570,000. The discount to the debt principal and the debt issuance costs will be amortized to interest expense using the effective interest rate method over the term of the mortgage loan.

F-17

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

7. Convertible Debt

      Convertible debt consists of:

	March 31,
	2005		2004
Senior Convertible Notes, face value of $86.25 million, due June 15, 2009, and convertible into shares of the Company’s common stock at $12.50 per share. Interest at 9% is payable semi-annually, on December 15 and June 15	$	53,972,558	$	—
Subordinated secured 10% convertible debentures due April 30, 2006; converted into shares of the Company’s common stock at $0.50 per share during May 2004 (face value of $25.0 million)		—		24,095,239
Subordinated secured 13% convertible debentures due December 31, 2005; converted into shares of the Company’s common stock at a weighted average conversion price of $21.40 per share during June 2004		—		10,300,000
Subordinated secured 13.125% convertible debentures due August 30, 2004; repaid or converted into shares of the Company’s common stock at a weighted average conversion price of $6.60 per share during the period from May to July 2004		—		2,750,000
	$	53,972,558	$	37,145,239
Less: Current portion of convertible debt		—		(250,000	)
Convertible debentures, less current portion	$	53,972,558	$	36,895,239

      On June 14, 2004, the Company privately placed $86.2 million in aggregate principal amount of the Senior Convertible Notes to qualified institutional buyers. The Senior Convertible Notes bear interest at a rate of 9% per annum, payable semiannually, on each December 15 and June 15, and are convertible at the option of the holders, into shares of the Company’s common stock at a conversion price of $12.50 per share. The Company used the net proceeds from this offering to pay notes payable amounting to approximately $36.5 million and convertible debt amounting to approximately $9.8 million. In conjunction with the offering, the Company incurred $6,635,912 in debt issuance costs, including $1,380,000 in estimated fair value of warrants issued to the placement agent to purchase 181,579 shares of the Company’s common stock at $9.50 per share.

      The Senior Convertible Notes rank pari passu with all existing and future unsecured and unsubordinated indebtedness, senior in right of payment to all existing and future subordinated indebtedness, and rank junior to any future secured indebtedness. If there is a change in control of the Company, the holders have the right to require the Company to repurchase their notes at a price equal to 100% of the principal amount, plus accrued and unpaid interest (the “Repurchase Price”). If a change in control occurs and at least 50% of the consideration for the Company’s common stock consists of cash, the holders of the Senior Convertible Notes may elect to receive the greater of the Repurchase Price or the Total Redemption Amount. The Total Redemption Amount will be equal to the product of (x) the average closing prices of the Company’s common stock for the five trading days prior to announcement of the change in control and (y) the quotient of $1,000 divided by the applicable conversion price of the Senior Convertible Notes, plus a make whole premium of $225 per $1,000 of principal if the change in control takes place before June 16, 2005 reducing to $45 per $1,000 of principal if the change in control takes place between June 16, 2008 and December 15, 2008. If the Company issues a cash dividend on its common stock, it will pay contingent interest to the holders of the Senior Convertible Notes equal to the product of the per share cash dividend and the number of shares of common stock issuable upon conversion of each holder’s note.

F-18

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Company may redeem some or all of the Senior Convertible Notes for cash at any time on or after June 15, 2007, if the closing price of the Company’s common shares has exceeded 200% of the applicable conversion price for at least 20 trading days within a period of 30 consecutive trading days ending on the trading day before the date it mails the redemption notice. If the Company redeems the notes during the twelve month period commencing on June 15, 2007 or 2008, the redemption price equals 104.5% or 102.25%, respectively, of their principal amount, plus accrued and unpaid interest, if any, to the redemption date, plus an amount equal to 50% of all remaining scheduled interest payments on the notes from, and including, the redemption date through the maturity date.

      The Senior Convertible Notes contain an early conversion incentive for holders to convert their notes into shares of common stock on or after December 16, 2004, but before June 15, 2007. If exercised, the holders will receive the number of common shares to which they are entitled and an early conversion incentive payment in cash or common stock, at the Company’s option, equal to one-half the aggregate amount of interest payable through June 15, 2007.

      The conversion option, including the early conversion incentive, the equity participation feature and a takeover whole premium due upon a change in control, embedded in the Senior Convertible Notes derivative instruments to be considered separately from the debt and accounted for separately. As a result of the bifurcation of the embedded derivatives, the carrying value of the Senior Convertible Notes at issuance was approximately $50.8 million. The Company is accreting the difference between the face value of the Senior Convertible Notes ($86.25 million) and the carrying value to interest expense under the effective interest method on a monthly basis over the life of the Senior Convertible Notes.

      As a result of the extinguishment of notes payable and convertible debentures, the Company recognized, during the year ended March 31, 2004, a gain on debt restructuring and extinguishment totaling approximately $3.4 million, representing the recognition of the unamortized balance of a debt restructuring deferred gain related to the Company’s notes payable and the write-off of debt issuance costs, net of an early redemption premium payment to the 13% debenture holders.

      In May 2004, the Company issued warrants to acquire 20,000 shares of the Company’s common stock at an exercise price of $0.10 and warrants to acquire 5,000 shares of the Company’s common stock at $7.00 per share. The warrants were issued in conjunction with short-term borrowings and had an aggregated estimated fair value of $172,650.

8. Derivatives

      The Senior Convertible Notes contain three embedded derivatives that require separate valuation from the Senior Convertible Notes: a conversion option that includes an early conversion incentive, an equity participation right and a takeover make whole premium due upon a change in control. The Company has estimated to date that the embedded derivatives related to the equity participation rights and the takeover make whole premium do not have significant value.

      The Company estimated that the embedded derivatives had an initial estimated fair value of approximately $35,483,000 and a March 31, 2005 estimated fair value of approximately $20,100,000 resulting from the conversion option. The change of $15,283,000 in the estimated fair value of the embedded derivative was recognized as other income in the year ended March 31, 2005.

      The interest rate on our mortgage loan is payable at variable rates indexed to LIBOR. To partially mitigate the interest rate risk on our mortgage loan, the Company paid $100,000 on December 31, 2004 to enter into a rate cap protection agreement. The rate cap protection agreement capped at the following rates

F-19

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the $49.0 million mortgage payable for the four-year period for which the rate cap protection agreement is in effect:

•  5.0% per annum, starting January 4, 2005;

•  5.75% per annum, starting August 11, 2005;

•  6.5% per annum, starting February 11, 2006;

•  7.25% per annum, starting August 11, 2006; and

•  7.72% per annum, starting February 11, 2007 until the termination date of the rate cap protection agreement.

9. Notes Payable

      In connection with the purchase of TECOTA, the Company issued Senior Secured Notes in an aggregate principal amount equal to $30.0 million and sold 306,044 shares of its common stock valued at $2.0 million to the Falcon investors. The Senior Secured Notes are collateralized by substantially all of the Company’s assets other than the TECOTA building, bear cash interest at 9.875% per annum and “payment in kind” interest at 3.625% per annum subject to adjustment upon satisfaction of specified financial tests, and mature in March 2009. The Senior Secured Notes include numerous covenants imposing significant financial and operating restrictions on the Company’s business.

      The Company’s new mortgage loan and Senior Secured Notes include numerous covenants imposing significant financial and operating restrictions on its business. The covenants place restrictions on the Company’s ability to, among other things:

•  incur more debt;

•  pay dividends, redeem or repurchase its stock or make other distributions;

•  make acquisitions or investments;

•  enter into transactions with affiliates;

•  merge or consolidate with others;

•  dispose of assets or use asset sale proceeds;

•  create liens on our assets; and

•  extend credit.

      Failure to comply with the obligations in the new mortgage loan or the Senior Secured Notes could result in an event of default under the new mortgage loan or the Senior Secured Notes, which, if not cured or waived, could permit acceleration of the indebtedness or other indebtedness which could have a material adverse effect on the Company’s financial condition.

      The Company issued to the Falcon investors, for no additional consideration, warrants to purchase an aggregate of 1.5 million shares of the Company’s common stock. Those warrants expire on December 30, 2011 and are divided into four equal tranches that differ only in respect of the applicable exercise prices, which are $6.90, $7.50, $8.20 and $8.80, respectively. The warrants were valued by a third party expert at approximately $6,600,000, which was recorded as a discount to the debt principal. Proceeds from the issuance of the senior secured notes and the warrants were allocated based on their relative fair values. The costs related to the issuance of the Senior Secured Notes were deferred and amounted to approximately $1,813,000. The discount to the debt principal and the debt issuance costs are being amortized to interest expense using the effective interest rate method over the term of the Senior Secured Notes.

F-20

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      At March 31, 2005, the Company also had a bank loan with an outstanding balance of 3.5 million Euros ($4.5 million at the March 31, 2005 exchange rate). The Company deposited 1,250,000 Euros ($1.6 million at the March 31, 2005 exchange rate) with the lender as security for the loan. On June 24, 2005, the maturity date of the loan was extended through July 15, 2005.

      At March 31, 2004, the Company had outstanding an aggregate of $40,506,039 in notes payable which were repaid in June 2004.

10. Stockholders’ Equity (Deficit)

Preferred stock

Series H redeemable convertible preferred stock

      In May 2001, the Company issued 294 shares of Series H redeemable convertible preferred stock for $500,000. The preferred stock allows for a preferential annual dividend of $102 per share and is convertible, as of March 31, 2004, into 294,000 shares of common stock. The preferred stock is redeemable at $1,700 per share plus any unpaid dividends at the request of the holder on June 1, 2005. The Series H redeemable convertible preferred stock shall vote together with the company’s common stock based on the then current conversion ratio.

Series I convertible preferred stock

      On March 31, 2004, the Company closed on the issuance of 400 shares of Series I 8% Convertible Preferred Stock for $7.7 million in cash and $2.2 million in promissory notes, together with warrants to purchase 2.8 million shares of the Company’s common stock which are exercisable for five years at $0.90 per share. The Company has collected all amounts due under the promissory notes. The Series I Preferred Stock is convertible into shares of the Company’s common stock at $0.75 per share. In January 2007, the Series I Preferred Stock dividend rate will increase to 10% per year until January 2009 when it increases to 12%. Dividends are payable, at the Company’s discretion, in shares of the Company’s common stock or cash. The Company has the right to redeem the Series I Preferred Stock at $25,000 per share plus accrued dividends at any time after December 31, 2004. Some of the Series I Preferred Stock shares were committed on dates where the conversion price was less than market. Accordingly, the Company recognized a non-cash preferred dividend of approximately $1.0 million in determining net loss per common share for the period ended March 31, 2004. The Series I Preferred Stock shall vote together with the Company’s common stock based on the then current conversion ratio.

Common stock

Issuance of Common Stock

      In March 2005 the Company sold 6 million shares in a public offering, at an offering price of $7.30 per share. After payment of underwriting discounts and commissions and other offering costs, the net proceeds to the Company were approximately $40.5 million.

      In December 2004, the Company sold 306,044 shares of its common stock valued at $2.0 million to the Falcon investors in connection with their issuance of the $30 million Senior Secured Notes for partially financing the TECOTA acquisition.

      In June 2002, the NAP de las Americas — Madrid S.A. purchased 500,000 shares of the Company’s common stock at $10.00 per share. In August 2003, as a result of the subsequent sale of certain common shares, the Company issued an additional 365,202 million shares of its common stock to NAP de Las Americas — Madrid S.A.

F-21

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      In April 2002, the Company received a binding commitment from two directors and some shareholders for the purchase of $7.5 million of common stock at $7.50 per share. In May 2002, the Company issued 1 million shares of its common stock for $3.6 million in cash and the conversion of $3.9 million in short-term promissory notes to equity.

      In April 2002, the Company entered into a Put and Warrant purchase agreement with TD Global Finance (“TDGF”). On July 19, 2002, the Company exercised its right to sell to TDGF 1,764,882 common shares for $5.80 per share for a total of $10.2 million.

Conversion of debt to equity

      On June 1, 2004, the holders of $25.0 million of the Company’s 10% convertible debentures and the holders of $2.5 million of the Company’s 13.125% convertible debentures converted their debentures into 5,489,927 shares of the Company’s common stock. In April 2004, $262,500 of debt was converted to 35,000 shares of common stock at $7.50 per share.

      During the year ended March 31, 2005, the Company recognized a non-cash gain of approximately $8.5 million related to financing transactions whereby approximately $21.6 million of the Company’s construction payables plus approximately $1.0 million in accrued interest was converted to approximately $30.1 million shares of the Company’s common stock with a $14.1 million market value upon conversion.

Conversion of preferred stock and debt to common stock

      In March 2005, the 20 shares outstanding of our Series G preferred stock, with an aggregate fair value of $1,550,000 (based on closing price of the Company’s common stock at conversion date) were converted into 225,525 shares of common stock.

      During the year ended March 31, 2005, 17 shares of Series I preferred stock, with an aggregate fair value of $375,000 (based on closing price of the Company’s common stock at conversion date) were converted to 55,564 shares of common stock.

      In October 2003, $258,306 of debt was converted to 34,441 shares of common stock at $7.50 per share.

      In August 2003, $45,004 of debt was converted to 6,001 shares of common stock at $7.50 per share.

      In April 2003, in conjunction with the Ocean Bank debt conversion of $15.0 million in debt to equity, the Company issued 2 million shares of its common stock at $7.50 per share.

      In April 2003, in conjunction with the CRG transaction whereby $21.6 million in construction payables plus $1.0 million in accrued interest was converted to equity, the Company issued 3,010,000 shares of its common stock at $7.50 per share.

      During the year ended March 31, 2003, holders of notes payable entered into irrevocable agreements and converted approximately $0.8 million in debt and accrued interest into approximately 100,000 shares of the Company’s common stock at $7.50 per share.

Grant of employee stock options

      In July 2004, the Compensation Committee of the Board of Directors approved the grant of options to certain employees, including some officers of the Company, to purchase 118,500 of the Company’s common stock at an exercise price of $6.50 per share, the price of the Company’s common stock on the date of the grant.

F-22

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Exercise of stock options

      During the year ended March 31, 2005, the Company issued 33,667 shares of its common stock in conjunction with the exercise of employee stock options at prices ranging from $3.30 to $5.20 per share.

      During the year ended March 31, 2004, 7,727 shares of common stock were issued in conjunction with the exercise of 7,727 employee stock options at prices ranging from $3.30 to $7.80 per share.

Exercise of warrants

      In August 2004, warrants were exercised for 20,000 shares of common stock at $0.10 per share.

      In May 2004, warrants were exercised for 15,162 shares of common stock at $8.00 per share.

      In June 2003, warrants valued at approximately $4,000 were converted to 950 shares of common stock at $4.80 per share.

Stock tendered in payment of loan

      On September 30, 2004, the Company’s Chairman and CEO repaid his outstanding $5 million loan from the Company by tendering to the Company approximately 770,000 shares of Terremark common stock.

Preferred stock dividend

      In November 2004, the Company issued 32,838 shares of the Company’s common stock to the holders of the Series I preferred stock in payment of accrued dividends.

      In February 2005, the Company issued 28,847 shares of common stock to holders of the Series I preferred stock in payment of dividends.

F-23

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Stock Warrants

      During the period from November 2000 through March 2005, the Company issued warrants to third parties for services and to facilitate certain debt and equity transactions. The following table summarizes information about stock warrants outstanding as of March 31, 2005.

						Estimated
	No. of shares		Exercise			Fair Value at
Issuance Date	able to purchase		Price		Expiration Date	Issuance
March 2005		10,000		7.20	March 2007	$	29,900
December 2004		2,000,000		6.80-8.80	March 2009		8,782,933
June 2004		181,579		9.50	June 2007		1,380,000
April 2004		5,000		7.00	April 2009		32,450
March 2004		285,397		9.00	March 2009		1,672,248
February 2004		1,210		9.00	February 2009		8,652
January 2004		5,000		7.10	January 2009		33,750
October 2003		5,000		7.30	October 2008		33,700
July 2003		10,000		6.20	July 2008		114,400
June 2003		30,000		5.00	June 2006		220,200
June 2003		25,000		7.50	June 2006		177,750
March 2003		30,000		7.50	March 2007		110,400
December 2002		30,000		7.50	March 2007		110,400
July 2002		10,000		5.40	July 2005		20,900
April 2002		27,000		4.00	March 2007		99,360
June 2001		1,300		17.20	June 2011		22,490
January 2002		950		4.80	June 2011		3,971
March 2001		30,000		20.00	March 2006		352,200
November 2000		25,000		27.60	November 2008		394,000
		2,712,436				$	13,599,704

      In December 2004, the Company issued warrants to purchase an aggregate of 2 million shares of its common stock at an average exercise price equal to $7.80 per share to the lenders in connection with the financing of the TECOTA acquisition. The estimated fair market value of such warrants was $8,782,933 (see Note 9).

      In August 2004, the Company issued warrants to acquire 181,579 shares of the Company’s common stock at an exercise price of $9.50 per share. The warrants were issued as part of the compensation to the placement agent for the private placement of the Senior Convertible Notes, and were accounted for as debt issuance costs at their estimated fair market value of $1,380,000 on the date the Company issued the Senior Convertible Notes.

Stock Options

      The Company has three stock option plans, whereby incentive and nonqualified options and stock appreciation rights may be granted to employees, officers, directors and consultants. There are 3,076,337 shares of common stock reserved for issuance under these plans. The exercise price of the options is determined by the Board of Directors, but in the case of an incentive stock option, the exercise price may not

F-24

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

be less than 100% of the fair market value at the time of the grant. Options vest over periods not to exceed ten years.

      On October 2001, the Company issued options to purchase 10,000 shares of common stock to each member of the Company’s Board of Directors, for a total of 90,000 options. The exercise price of the options is $6.70 per share and were immediately exercisable.

      Effective July 22, 2003, Brian Goodkind stepped down as Executive Vice President and Chief Operating Officer and became a strategic advisor to the Chief Executive Officer. In connection with this modification to the employment relationship, the Company accelerated the vesting on his outstanding stock options and awarded him new stock options. As a result, the Company recognized a non-cash, stock-based compensation charge of approximately $1.8 million in the year ended March 31, 2004.

      A summary of the status of stock options is presented below:

					Weighted
					Average
		Number			Exercise Price
Outstanding at March 31, 2003			1,486,396		$	13.70
Granted			551,577			5.60
Expired/ Terminated			(71,977	)		7.30
Exercised			(7,060	)		4.90
Outstanding at March 31, 2004			1,958,936		$	11.70
Granted			519,128			6.20
	Expired/ Terminated		(51,549	)		13.50
	Exercised		(33,667	)		3.70
Outstanding at March 31, 2005			2,392,848		$	10.60
Options exercisable at:
March 31, 2005			1,744,419			1.23
March 31, 2004			1,444,245			1.39
Weighted average fair value of options granted during year ended:
March 31, 2005		$	0.54
March 31, 2004		$	0.51

      The following table summarizes information about options outstanding at March 31, 2005:

			Average
			Remaining		Average		Number
			Contractual		Exercise		Exercisable
Range of Exercise Prices March 31, 2005	Outstanding at		Life (Years)		Price		Options at
$0.25-0.50		592,108		7.6	$	3.50		532,460
$0.51-1.00		1,251,261		8.1		6.40		662,507
$1.01-1.50		85,156		4.3		12.70		85,156
$1.51-2.00		36,171		5.8		17.50		36,171
$2.01-3.00		139,790		5.6		24.80		139,763
$3.01-5.00		288,362		5.2		33.30		288,362
		2,392,848		7.1		12.40		1,744,419

F-25

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      On May 26, 2005, the Company issued 111,017 shares of its common stock to one of our directors in connection with the exercise of options at $3.50 per share.

11. Commitments and Contingencies

Leasing activities

      The Company leases space for its operations, office equipment and furniture under operating leases. Certain equipment is also leased under capital leases, which are included in improvements, furniture and equipment.

      The Company leases space for the colocation facility in Santa Clara, California. The lease commenced in January 2001 and is for 20 years. Annual rent payments are approximately $1,500,000. The company also leases space for its facilities in Brazil and Virginia, as well as its corporate offices. Annual rent payments for these facilities are approximately $975,000 per year.

      During February 2005, the Company entered into a lease agreement with Global Switch Property Madrid, S.L. for the facility in Madrid, Spain which houses the NAP of the Americas-Madrid. The annual rent payments under this lease are approximately 800,000 euros ($1,033,000 at the March 31, 2005 exchange rate) exclusive of value added tax. Payments of rent under the lease agreement commenced in March 2005, and the initial term of the lease expires on December 25, 2015. As required by the terms of the lease agreement, the Company has obtained a five year bank guarantee in favor of Global Switch in an amount equal to the annual rent payments. In connection with this bank guarantee, the Company has deposited 50% of the guaranteed amount, or approximately 475,000 euros ($613,500 at the March 31, 2005 exchange rate), with the bank issuing the guarantee.

      The Company has entered into capital lease agreements with third parties for equipment related primarily to the NAP of the Americas. Generally, the lease terms are for 48 months, and the aggregate gross related assets total approximately $4.5 million.

      Operating lease expense, in the aggregate, amounted to approximately $9.7 million, $7.8 million, and $6.0 million for the years ended March 31, 2005, 2004 and 2003, respectively.

      At March 31, 2005, future minimum lease payments for each of the following five years and thereafter under non-cancelable operating and capital leases having a remaining term in excess of one year are as follows:

			Capital			Operating
			Leases			Leases
2006			$	1,117,962		$	3,198,752
2007				300,807			3,167,573
2008				181,541			3,129,655
2009				—			3,087,242
2010				—			3,172,557
Thereafter				—			31,172,525
	Total minimum lease payments		$	1,600,310		$	46,928,304
	Amount representing interest			(128,410	)
		Present value of net minimum lease payments	$	1,471,900

F-26

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Litigation

      From time to time, the Company is involved in various litigation relating to claims arising out of the normal course of business. These claims are generally covered by insurance. The Company is not currently subject to any litigation which singularly or in the aggregate could reasonably be expected to have a material adverse effect on the Company’s financial position or results of operations.

12. Related Party Transactions

      Due to the nature of the following relationships, the terms of the respective agreements may not be the same as those that would result from transactions among wholly unrelated parties.

      Following is a summary of transactions for the years ended March 31, 2005 and 2004 and balances with related parties included in the accompanying balance sheet as of March 31, 2005 and 2004.

	For the Year Ended March 31,
	2005		2004		2003
Rent expense	$	5,818,784	$	5,308,272	$	3,558,196
Services purchased from related parties		957,483		501,080		—
Property management and construction fees		144,826		198,000		510,000
Revenues from NAP de las Americas — Madrid		—		43,000		340,000
Interest income on notes receivable — related party		50,278		76,284		61,000
Interest income from shareholder		28,944		32,489		37,000
Interest expense		670,649		2,065,695		1,198,076
Services provided to a related party		2,475
Other assets	$	477,846	$	499,009
Note receivable — related party		—		5,000,000
Notes payable to related parties		—		35,516,977
Convertible debt		—		4,150,000

      On September 30, 2004, the Company’s Chairman and CEO repaid his outstanding $5 million loan from the Company, plus accrued interest, by tendering to the Company approximately 770,000 shares of Terremark common stock. The 770,000 shares tendered to the Company were immediately retired. These shares were valued at $6.50 per share by the Company’s Board of Directors. As a result, the Company recognized an expense of approximately $77,000 which represents the difference between the Company’s estimated value of the shares tendered and the $6.40 closing price of the Company’s common stock on September 28, 2004, the date the agreement to tender the 770,000 shares was approved by the Company’s Board of Directors.

      During the year ended March 31, 2005 the Company purchased approximately $957,000 in services from Fusion Telecommunications International, Inc. (“Fusion”). The Company’s Chief Executive Officer (and Chairman of the Board of Directors) has a minority interest in Fusion and is a member of its Board of Directors.

F-27

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

13. Data Center Revenues

      Data center revenues consist of the following:

	For the Year Ended March 31,
	2005		2004
Colocation	$	21,402,860	$	9,861,638
Exchange point services		4,564,283		3,571,709
Managed and professional services		9,017,282		3,179,264
Other		918		421,766
	$	34,985,343	$	17,034,377
Technology infrastructure buildouts		11,832,745		—
Total data center revenues	$	46,818,088	$	17,034,377

14. Other Income (Expenses)

      On November 2003, a developer agreed to pay the Company to develop a facility in Australia. The developer paid the Company $500,000 upon execution of the agreement and the remaining balance of $3.3 million on December 2003. On February 2004, the developer notified the Company it did not wish to proceed with negotiations regarding the construction of a facility in Australia and the Company terminated the agreement with the developer. The Company has no further obligations in connection with the agreement and as a result recognized the $3.8 million non-refundable fee as other income in the quarter ended March 31, 2004.

15. Income Taxes

      No provision for income taxes was recorded for each of the three years ended March 31, 2005, 2004, and 2003 as the Company incurred net operating losses in each year.

      Deferred tax assets (liabilities) consist of the following:

	March 31,
	2005			2004
Deferred tax assets:
Charitable contributions	$	225,055		$	223,947
Capitalized start-up costs		1,163,296			2,063,736
Allowances and other		2,234,326			11,246,433
Net operating loss carryforwards		47,796,808			34,211,590
Net operating loss carryforwards retained from discontinued operations		17,280,709			17,280,709
Tax credits		245,780			245,780
Total deferred tax assets		68,945,974			65,272,195
Valuation allowance		(65,949,914	)		(63,283,833	)
Deferred tax liability:
Other		(2,996,060	)		(1,988,362	)
Total deferred tax liability		(2,996,060	)		(1,988,362	)
Net deferred tax asset	$	—		$	—

F-28

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Company’s accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of the Company’s deferred tax assets. To support the Company’s conclusion that a 100% valuation allowance was required, the Company primarily considered such factors as the Company’s history of operating losses, the nature of the Company’s deferred tax assets and the absence of taxable income in prior carryback years. Although the Company’s operating plans assume taxable and operating income in future periods, the Company’s evaluation of all the available evidence in assessing the realizability of the deferred tax assets indicates that such plans are not considered sufficient to overcome the available negative evidence.

      The Company’s federal and state net operating loss carryforwards, amounting to approximately $171 million, begin to expire in 2011. Utilization of the net operating losses generated prior to the AmTec merger may be limited by the Internal Revenue Code.

      The reconciliation between the statutory income tax rate and the effective income tax rate on pre-tax (loss) income is as follows:

	For the Year Ended March 31,
	2005			2004			2003
Rate reconciliation
Statutory rate		(34.0	)%		(34.0	)%		(34.0	)%
State income taxes, net of federal income tax benefit		(2.9	)		(3.2	)		(3.2	)
Permanent differences		9.0			14.0			6.8
Increase in valuation allowance		27.9			23.2			30.4
Effective tax rate		—	%		—	%		—	%

      The Company expects to pay a limited amount of tax for the years ended March 31, 2006 and 2007. The tax costs will be primarily limited to alternative minimum taxes as the Company anticipates utilizing its net operating loss carryforwards and expects to have significant tax deductions attributable to stock options exercised in the years.

16. Information About the Company’s Operating Segments

      During the years ended March 31, 2005, 2004, and 2003, the Company had two reportable business segments, data center operations and real estate services. The data center operations segment provides Tier 1 NAP, Internet infrastructure and managed services in a data center environment. The real estate services segment constructs and manages real estate projects focused in the technology sector. The Company’s reportable segments are strategic business operations that offer different products and services.

      The accounting policies of the segments are the same as those described in significant accounting policies. Revenues generated among segments are recorded at rates similar to those recorded in third-party transactions. Transfers of assets and liabilities between segments are recorded at cost. The Company evaluates performance based on the segment’s net operating results.

F-29

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following present information about reportable segments:

	Data center			Real Estate
For the year ended March 31,	operations			services			Total
2005
Revenue		46,818,088			1,329,526			48,147,614
Loss from operations		(13,506,734	)		(400,010	)		(13,906,744	)
Net loss		(9,490,543	)		(368,809	)		(9,859,352	)
2004
Revenue	$	17,034,377		$	1,179,362		$	18,213,739
Loss from operations		(20,237,820	)		(338,587	)		(20,576,407	)
Net loss		(22,152,261	)		(338,316	)		(22,490,577	)
2003
Revenue	$	11,032,984		$	3,660,719		$	14,693,703
Loss from operations		(21,658,738	)		(3,671,562	)		(25,330,300	)
Net loss		(37,565,136	)		(3,662,169	)		(41,227,305	)
Assets, as of
March 31, 2005		208,905,664			—			208,905,664
March 31, 2004	$	77,101,579		$	331,124		$	77,432,703

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

		For the Year Ended March 31,
		2005			2004			2003
Total segment loss from operations			(13,906,744	)	$	(20,576,407	)	$	(25,330,300	)
Change in fair value of derivatives			15,283,500			—			—
Debt restructuring			3,420,956			8,475,000			—
Inducement on debt conversion						—			(4,871,245	)
Interest income			666,286			131,548			136,278
Interest expense			(15,493,610	)		(14,624,922	)		(11,007,683	)
Gain on real estate held for sale						—			—
Other income (expense)			170,260			4,104,204			(154,355	)
	Loss before income taxes	$	(9,859,352	)	$	(22,490,577	)	$	(41,227,305	)

F-30

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

17. Supplemental Cash Flow Information

		For the Year Ended March 31,
		2005		2004			2003
Supplemental disclosures of cash flow information:
	Cash paid for interest	$	6,399,840	$	7,349,467		$	7,321,545
Non-cash operating, investing and financing activities:
	Warrants issued		1,380,000		644,597			612,500
	Conversion of notes payable to convertible debt		—		5,450,000			—
	Beneficial conversion feature on issuance of convertible debentures and preferred stock		—		10,472,021			—
	Assets acquired under capital leases		—		196,211			—
	Warrants exercised and converted to equity		261,640		3,971			—
	Conversion of accounts payable to equity		—		229,588			361,491
	Conversion of debt and related accrued interest to equity		262,500		9,420,004			4,205,686
	Conversion of construction payables and accrued interest to equity		—		14,400,977			—
	Conversion of liabilities of discontinued operations to equity		—		—			370,000
	Forgiveness of construction payables		—		—			1,290,013
	Conversion of convertible debt and related accrued interest to equity		27,773,524		258,306			17,080,476
	Settlement of note receivable through extinguishment of convertible debt		418,200		—			—
	Issuance of note payable for other asset		—		—			1,000,000
	Cancellation and expiration of warrants		146,145		26,575			—
	Settlement of notes receivable — related party by tendering Terremark Stock		4,951,904		—			—
	Non-cash preferred dividend		481,947		(1,158,244	)		(160,000	)

F-31