UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K/A

(Amendment No. 2)

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
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 CEO Certification
Section 302 CFO Certification
Section 906 CEO Certification
Section 906 CFO Certification

PART I

10-K/A EXPLANATORY NOTE

      Terremark Worldwide, Inc. (the “Company”) is filing this Amendment No. 2 to its Annual Report on Form 10-K for the fiscal year ended March 31, 2005, which was originally filed on June 29, 2005 (the “Original Filing”) and amended by Amendment No. 1, which was filed on August 5, 2005 (the “First Amendment”). This Amendment No. 2 is being filed solely to:

•  amend and restate a Report of Independent Registered Certified Public Accounting Firm to provide for a date of August 4, 2005 as opposed to the July 28, 2005 date which appeared in such report filed with the First Amendment;

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

•  include in Exhibit 23.1, Consent of Independent Registered Certified Public Accounting Firm, reference to the Company’s Registration Statements on Form S-3 (Nos. 333-123775, 333-102286 and 333-121133) which were filed after the Original Filing.

      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.

1

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)

2

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)

3

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

4

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 16, 2005

By: /s/ JOSE A. SEGRERA

Jose A. Segrera

Executive Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

Date: August 16, 2005

5

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

August 4, 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).

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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

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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

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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

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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.

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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.

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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

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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.

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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.

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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.

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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