UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q/A

Amendment No. 1

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended December 31, 2004
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from           to

Commission file number 001-12475

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

      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 whether the registrant is a large accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o          Accelerated filer þ          Non-accelerated filer o

      Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).     Yes o          No þ

      The registrant had 35,445,518 shares of common stock, $0.01 par value, outstanding as of January 31, 2005.

Table of Contents

		Page
PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements		2
	Condensed Consolidated Balance Sheets as of December 31, 2004 (unaudited) and March 31, 2004		2
	Condensed Consolidated Statements of Operations for the nine and three months ended December 31, 2004 (as restated) and 2003 (unaudited)		3
	Condensed Consolidated Statement of Changes in Stockholders’ Equity for the nine months ended December 31, 2004 (unaudited)		4
	Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2004 and 2003 (unaudited)		5
	Notes to Condensed Consolidated Financial Statements (unaudited)		6
Item 4.	Controls and Procedures		22
PART II — OTHER INFORMATION
Item 6.	Exhibits		24

Explanatory Note

      Terremark Worldwide, Inc. (the “Company”) is amending its Quarterly Report on Form 10-Q for the quarter ended December 31, 2004 to correct the disclosures of diluted earnings per share as described in more detail below.

      As previously reported, the Company is restating its previously reported annual and interim disclosures of diluted earnings per share. As reported on November 9, 2005, in calculating diluted earnings per share using the “if converted” method for the year ended March 31, 2005 and for certain interim periods therein, the Company adjusted the net income or loss attributable to common stockholders for the interest expense on its 9% Senior Convertible Notes due June 15, 2009 (the “Senior Convertible Notes”); however, it did not consider the effect on net income or loss attributable to common stockholders of the change in fair value of the embedded derivatives within those same Senior Convertible Notes. Additionally, the Company made an adjustment to its previously reported basic earnings per share for the three and six months ended September 30, 2004 to correct its basic earnings per share calculation under the “two-class” method. On December 14, 2005, the Company concluded that it failed to use the correct interest expense amount in calculating diluted earnings per share for the September 30, 2004 and December 31, 2004 interim periods in the fiscal year ended March 31, 2005 when reporting restated amounts in its Current Report on Form 8-K filed on November 9, 2005. The Company had previously noted that it failed to use the correct interest expense amount in calculating diluted earnings per share for the June 30, 2004 interim period but had not reported this matter. The Company has determined that the effect of these matters was material to amounts previously disclosed for the year ended March 31, 2005, the nine months ended December 31, 2004, the three and six months ended September 30, 2004 and the three months ended June 30, 2004. See Note 2 to the consolidated financial statements for the quarter ended December 31, 2004 in this Quarterly Report on Form 10Q/A.

      None of these adjustments affect previously recorded operating revenues, net loss, cash flow from operations or the Company’s financial position as reported on its balance sheets. However, in connection with the restatement described above, management determined that the Company did not maintain effective controls over the evaluation of interest expense and the impact of embedded derivatives within the Senior Convertible Notes in the calculation of diluted earnings per share under the “if converted” method and did not accurately calculate basic earnings per share under the two-class method, in accordance with generally accepted accounting principles, and that this control deficiency constitutes a material weakness. Accordingly, the Company is filing this Amendment No. 1 on Form 10-Q/A to its Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2004, which was originally filed on February 9, 2005 (the “Original Filing”). This Amendment No. 1 is being filed for the purpose of amending and restating Item 1. “Condensed Consolidated Financial Statements” and Item 4. “Control and Procedures” as set forth in 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 have been re-executed and re-filed as of the date of this Form 10-Q/A.

      Except for the amendments described above, this Form 10-Q/ A does not modify or update other disclosures.

1

PART I.     FINANCIAL INFORMATION

Item 1. Financial Statements

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

		December 31,			March 31,
		2004			2004
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	15,814,894		$	4,378,614
Restricted cash			11,637,692			—
Accounts receivable, net of allowance for doubtful accounts of $200,000 at December and March			3,333,795			3,214,101
Current portion of capital lease receivable			1,577,760			—
Note receivable			—			2,285,000
Contracts receivable			40,014			363,043
Prepaid and other current assets ($470,967 and $499,009 due from related parties)			716,462			1,115,230
Deferred costs under government contracts			1,766,398			—
	Total current assets		34,887,015			11,355,988
Investment in unconsolidated entities, net			—			725,319
Restricted cash			5,621,020			789,476
Property and equipment, net			121,800,043			53,897,716
Debt issuance costs			9,699,508			488,971
Other assets			1,959,105			175,363
Capital lease receivable, net of current portion			4,615,431			—
Goodwill			9,999,870			9,999,870
	Total assets	$	188,581,992		$	77,432,703
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Note payable to a former owner of TECOTA		$	7,244,489		$	—
Current portion of mortgage payable			680,303			—
Current portion of notes payable ($4,325,010 due to related parties at March 31)			4,644,600			9,194,145
Construction payables			2,134,713			1,363,554
Accounts payable and accrued expenses			16,075,937			7,067,319
Current portion of capital lease obligations			1,051,239			1,799,726
Interest payable			512,328			1,952,978
Current portion of unearned interest			533,135			—
Convertible debt			—			250,000
	Total current liabilities		32,876,744			21,627,722
Mortgage payable			46,119,108			—
Convertible debt			53,017,846			36,895,239
Derivatives embedded within convertible debt, at estimated fair value			21,139,875			—
Notes payable, less current portion (includes $31,191,967 due to related parties at March 31)			23,417,655			31,311,894
Deferred rent			1,751,194			6,938,454
Unearned interest under capital lease receivables			781,859			—
Capital lease obligations, less current portion			137,360			105,886
Deferred revenue			2,640,424			2,686,396
Series H redeemable convertible preferred stock: $.001 par value, 294 shares issued and outstanding, at liquidation value			609,208			586,718
	Total liabilities		182,491,273			100,152,309
Minority interest			76,614			—
Commitments and contingencies			—			—
Stockholders’ equity (deficit):
Series G convertible preferred stock: $.001 par value, 20 shares issued and outstanding (liquidation value of approximately $2.9 million)			1			1
Series I convertible preferred stock: $.001 par value, 390 shares issued and outstanding (liquidation value of approximately $10.3 million and $10.0 million)			1			1
Common stock: $.001 par value, 60,000,000 shares authorized; 36,310,720 and 31,122,748 shares issued			363,107			311,227
Common stock warrants			13,715,949			3,642,006
Common stock options			1,545,375			1,545,375
Additional paid-in capital			238,020,476			213,596,501
Accumulated deficit			(239,865,271	)		(236,814,717	)
Accumulated other comprehensive loss			(544,896	)		—
Treasury stock: 865,202 shares			(7,220,637	)		—
Note receivable — related party			—			(5,000,000	)
	Total stockholders’ equity (deficit)		6,014,105			(22,719,606	)
	Total liabilities and stockholders’ equity (deficit)	$	188,581,992		$	77,432,703

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

2

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

				For the Nine Months Ended						For the Three Months Ended
				December 31,						December 31,
				2004
				(Restated)			2003			2004			2003
				(Unaudited)						(Unaudited)
Revenues
	Data center — services			$	23,951,730		$	11,834,820		$	8,925,815		$	4,591,996
	Data center — technology infrastructure build-out				9,393,896			—			9,393,896			—
	Development, commission and construction fees				—			41,081			—			—
	Management fees				144,827			150,800			53,905			43,730
	Construction contracts				1,184,700			328,336			187,914			229,364
		Operating revenues			34,675,153			12,355,037			18,561,530			4,865,090
Expenses
	Data center operations — services, excluding depreciation (includes $5,818,784 and $3,072,161 (nine months) and $1,939,595 and $1,293,063 (three months) in rent expense with a related party				20,176,588			11,170,512			7,975,918			4,664,026
	Data center operations — technology infrastructure build-out				7,406,149			—			7,406,149			—
	Construction contract expenses, excluding depreciation				1,128,751			337,613			179,938			228,957
	General and administrative				10,451,253			10,325,328			3,471,807			2,855,910
	Sales and marketing				3,403,263			2,348,849			1,370,144			815,539
	Depreciation and amortization				3,900,392			3,570,569			1,327,338			1,218,886
		Operating expenses			46,466,396			27,752,871			21,731,294			9,783,318
			Loss from operations		(11,791,243	)		(15,397,834	)		(3,169,764	)		(4,918,228	)
Other income (expenses)
	Change in estimated fair value of derivatives embedded within convertible debt				14,343,375			—			664,125			—
	Gain on debt restructuring and extinguishment, net				3,420,956			8,475,000			—			—
	Interest expense (includes $670,649 and $1,475,218 (nine months) and $13,113 and $593,268 (three months) with a related party)				(9,387,826	)		(10,498,899	)		(2,954,678	)		(4,273,353	)
	Interest income				331,387			100,615			135,144			44,886
	Other, net				32,797			291,789			37,056			(5,043	)
		Total other income (expenses)			8,740,689			(1,631,495	)		(2,118,353	)		(4,233,510	)
	Loss before income taxes				(3,050,554	)		(17,029,329	)		(5,288,117	)		(9,151,738	)
Income taxes					—			—			—			—
Net loss					(3,050,554	)		(17,029,329	)		(5,288,117	)		(9,151,738	)
Preferred dividend					(721,821	)		(120,000	)		(235,000	)		(40,000	)
Net loss attributable to common shareholders				$	(3,772,375	)	$	(17,149,329	)	$	(5,523,117	)	$	(9,191,738	)
Net loss per common share:
	Basic			$	(0.11	)	$	(0.57	)	$	(0.16	)	$	(0.30	)
	Diluted			$	(0.30	)	$	(0.57	)	$	(0.16	)	$	(0.30	)
	Weighted average common shares outstanding — basic				34,117,235			30,303,080			35,135,181			30,887,597
	Weighted average common shares outstanding — diluted				39,100,568			30,303,080			42,035,181			30,887,597

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

3

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES

IN STOCKHOLDERS’ EQUITY (DEFICIT)

	Stockholders’ Equity (Deficit) (Unaudited)
	Common Stock
	Par Value
	$.001																	Accumu-						Note
							Common			Common		Additional			Accumu-			lated Other						Receivable
	Issued						Stock			Stock		Paid-In			lated			Compre-			Treasury			Related
	Shares			Amount			Warrants			Options		Capital			Deficit			hensive Loss			Stock			Party
Balance at March 31, 2004		31,122,748		$	311,227		$	3,642,006		$	1,545,375	$	213,596,501		$	(236,814,717	)	$	—		$	—		$	(5,000,000	)
Issuance of shares		306,044			3,060			—			—		1,996,940			—			—			—			—
Conversion of debt		5,524,927			55,249			—			—		27,980,775			—			—			—			—
Conversion of preferred stock		33,335			333			—			—		(333	)		—			—			—			—
Exercise of stock options		33,667			337			—			—		122,423			—			—			—			—
Warrants issued		—			—			10,335,583			—		—			—			—			—			—
Exercise of warrants		35,162			352			(261,640	)		—		263,288			—			—			—			—
Preferred stock issuance costs		—			—			—			—		(587,860	)		—			—			—			—
Accrued dividends on preferred stock		—			—			—			—		(601,820	)		—			—			—			—
Preferred stock dividend in lieu of cash		32,838			328			—			—		194,730			—			—			—			—
Stock tendered in payment of loan and retired		(773,735	)		(7,737	)		—			—		(4,944,167	)		—			—			—			5,000,000
Retirement of treasury shares		(4,266	)		(43	)		—			—		0			—			—			—			—
Net assets acquired from NAP Madrid		—			—			—			—		0			—			—			(7,220,637	)		—
Foreign currency translation adjustment		—			—			—			—		—			—			(544,896	)		—			—
Net loss		—			—			—			—		—			(3,050,554	)		—			—			—
Balance at December 31, 2004		36,310,720		$	363,107		$	13,715,949		$	1,545,375	$	238,020,476		$	(239,865,271	)	$	(544,896	)	$	(7,220,637	)	$	—

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

4

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

					For the Nine Months Ended
					December 31,
					2004			2003
					(Unaudited)
Cash flows from operating activities:
	Net loss				$	(3,050,554	)	$	(17,029,329	)
	Adjustments to reconcile net loss to net cash used in operating activities
		Depreciation and amortization of long-lived assets				3,900,392			3,570,569
		Change in estimated fair value of embedded derivatives				(14,343,375	)		—
		Accretion on convertible debt				2,243,784			—
		Amortization of beneficial conversion feature on issuance of convertible debentures				904,761			5,880,953
		Amortization of debt issuance costs				499,798			110,002
		Gain on debt restructuring and extinguishment				(3,626,956	)		(8,475,000	)
		Other, net				(50,319	)		—
		Stock-based compensation				—			1,905,576
		Warrants issued for services				172,650			—
		(Increase) decrease in:
			Accounts receivable, net			(119,694	)		(619,474	)
			Contracts receivable			323,029			(77,013	)
			Capital lease receivable, net of unearned interest			(4,878,197	)		—
			Other assets			(1,539,805	)		(156,953	)
			Deferred costs under government contracts			(1,766,398	)		—
		Increase (decrease) in:
			Accounts payable and accrued expenses			5,012,666			(2,520,317	)
			Interest payable			(1,167,126	)		(1,773,871	)
			Deferred revenue			(45,972	)		4,126,470
			Net assets/liabilities of discontinued operations			—			(752,620	)
			Construction payables			(92,344	)		—
			Deferred rent			4,136,765			2,938,929
				Net cash used in operating activities		(13,486,895	)		(12,872,078	)
Cash flows from investing activities:
	Capital improvement cash reserve					(4,000,000	)		(20,571	)
	Purchases of property and equipment					(6,807,074	)		(1,818,632	)
	Investment in unconsolidated entities					—			3,878
	Acquisition of a majority interest in NAP Madrid					(2,537,627	)		—
	Acquisition of TECOTA, net of cash acquired					(73,936,374	)		—
	Proceeds from notes receivable-related party					50,000			—
				Net cash used in investing activities		(87,231,075	)		(1,835,325	)
Cash flows from financing activities:
	Increase in restricted cash					(5,224,747	)		—
	Proceeds from mortgage loan					46,799,411			—
	Issuance of senior secured notes					23,417,655			—
	Increase in construction payables					863,503			591,283
	Payments on loans					(36,490,245	)		(2,629,358	)
	Issuance of convertible debt					86,257,312			19,550,000
	Payments on convertible debt					(10,131,800	)		(1,407,000	)
	Debt issuance costs					(6,007,370	)		—
	Proceeds from issuance of common stock					2,000,016			—
	Proceeds from sale of preferred stock					2,131,800			—
	Preferred stock issuance costs					(587,860	)		—
	Other borrowings					935,895			750,000
	Payments under capital lease obligations					(717,013	)		(532,258	)
	Issuance of warrants					8,782,933			—
	Proceeds from exercise of stock options and warrants					124,760			15,837
				Net cash provided by financing activities		112,154,250			16,338,504
				Net increase in cash and cash equivalents		11,436,280			1,631,101
Cash and cash equivalents at beginning of period						4,378,614			1,408,190
Cash and cash equivalents at end of period					$	15,814,894		$	3,039,291

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

5

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED 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 Sao 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 was designed and built to disaster-resistant standards with maximum security to house mission-critical systems infrastructure.

2. Restatement

      The accompanying consolidated financial statements for the quarter ended December 31, 2004 have been restated to correct the disclosures of diluted earnings per share. In calculating diluted earnings per share using the “if converted” method, the Company adjusted the net income or loss attributable to common stockholders for the interest expense on its 9% Senior Convertible Notes due June 15, 2009 (the “Senior Convertible Notes”); however, it did not consider the effect on net income or loss attributable to common stockholders of the change in fair value of the embedded derivatives within those Senior Convertible Notes. The Company has determined that this effect was dilutive for the nine months ended December 31, 2004. The effect of these matters in calculating diluted earnings per share was to decrease the net loss by approximately $6.3 million for the adjustment of interest expense, increase the net loss by approximately $14.3 million to reverse the effect of the change in the fair value of the embedded derivative within the senior convertible notes and increase the weighted average common shares outstanding by approximately 5 million shares. These adjustments increased the diluted loss per share from ($0.11) (as previously reported) to ($0.30) (as restated).

      The accompanying notes have been restated to reflect the above matters and the additional disclosures required when presenting diluted earnings per share that are not equal to basic earnings per share.

3. Acquisitions

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 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 December 31, 2004 include the assets and liabilities of NAP Madrid, as well as the 20% minority interest. The assets of NAP Madrid primarily consist of 8.7 million 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 3.4 million Euros ($4.6 million at the

6

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2004 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 Interest		(167,466	)
Net Assets	$	2,871,062
Previous equity ownership		(333,435	)
Cash paid for acquisition	$	2,537,627

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 Americas is housed (“TECOTA 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 TECOTA 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
Current assets	$	1,957,000
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
Previous Terremark’s partnership interest in TECOTA under cost method		(392,000	)
Repayment of old mortgage		(35,736,000	)
Due to former TECOTA partners		39,664,000
Cash paid at December 31, 2004 closing		(32,420,000	)
Note payable due to a former TECOTA partner	$	7,244,000

      At the closing of the purchase, the Company paid the former TECOTA partners $32,420,000 in cash and issued to one of the former TECOTA partners a non-interest bearing note in the principal amount of

7

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

$7,244,000 due on January 3, 2005 in payment of the purchase price for the equity interests. The non-interest bearing note was paid in full on January 3, 2005 from funds included in restricted cash balance as of December 31, 2004.

      The following unaudited pro forma financial information has been presented as if the acquisition of TECOTA had occurred as of the beginning of fiscal 2004:

Revenues	$	38,400,000
Net loss	$	(5,867,000	)
Basic and diluted net loss per common share	$	(0.19	)

      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”).

4. Summary of Significant Accounting Policies

      The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles for complete annual financial statements.

      The unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary to present fairly the financial position and the results of operations for the interim periods presented. Operating results for the quarter ended December 31, 2004 may not be indicative of the results that may be expected for the year ending March 31, 2005. Amounts as of March 31, 2004 included in the condensed consolidated financial statements have been derived from audited consolidated financial statements as of that date. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended March 31, 2004. The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company balances and transactions have been eliminated.

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.

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.

8

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      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 locked certain LIBOR 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. 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 endings.

Installation and other outsourcing services under customer contracts

      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. The balance of each periodic lease payment, representing principal repayment, is recognized as a reduction to capital lease receivable.

9

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Significant concentrations

      The Company’s two largest customers accounted for approximately 43% and 15%, respectively, of data center revenues for the nine months ended December 31, 2004. One customer accounted for approximately 11% of data center revenues for the nine months ended December 31, 2003. One customer accounted for approximately 64% of data center revenues for the three months ended December 31, 2004. One customer accounted for approximately 19% of data center revenues for the three months ended December 31, 2003.

Reclassifications

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

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 Nine Months Ended						For the Three Months Ended
	December 31,						December 31,
	2004			2003			2004			2003
Net loss attributable to common shareholders as reported	$	(3,772,375	)	$	(17,149,329	)	$	(5,523,117	)	$	(9,191,738	)
Stock-based compensation expense if the fair value method had been adopted		(927,293	)		(3,324,013	)		(310,684	)		(350,317	)
Pro forma net loss attributable to common shareholders	$	(4,699,668	)	$	(20,473,342	)	$	(5,833,801	)	$	(9,542,055	)
Basic loss per common share	$	(0.11	)	$	(0.57	)	$	(0.16	)	$	(0.30	)
Basic loss per common share — pro forma	$	(0.14	)	$	(0.68	)	$	(0.17	)	$	(0.31	)
Diluted loss per common share (as restated)	$	(0.30	)	$	(0.57	)	$	(0.16	)	$	(0.30	)
Diluted loss per common share — pro forma	$	(0.33	)	$	(0.68	)	$	(0.17	)	$	(0.31	)

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

	2004		2003
Risk free rate		2.14% - 3.50%		2.14% - 2.90%
Volatility (three year historical)		89 - 150%		155%
Expected life		5 years		5 years
Expected dividends		0%		0%

10

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Minority interest

      Minority interest is the portion of NAP Madrid that is not owned by the Company and represents the minority shareholder in the book value of NAP Madrid’s net assets.

Loss per share (as restated)

      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.

      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 are included in the computation of basic EPS. Our participating securities do not have a contractual obligation to share in the losses in any given period. As a result, these participating securities will not be allocated any losses in the periods of net losses, but will be allocated income in the periods of net income using the two-class method. The two-class method is an earnings allocation formula that determines earnings for each class of common stock and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. Under the two-class method, net income is reduced by the amount of dividends declared in the current period for each class of stock and by the contractual amounts of dividends that must be paid for the current period. The remaining earnings are then allocated to common stock and participating securities to the extent that each security may share in earnings as if all of the earnings for the period had been distributed. Diluted EPS is calculated using the treasury stock and “if converted” methods for potential common stock. For diluted earnings (loss) per share purposes, however, the Company’s preferred stock will continue to be treated as a participating security in periods in which the use of the “if converted” method results in anti-dilution.

      The following table presents the reconciliation of net loss to the numerator used for diluted loss per share.

		For the Nine Months Ended						For the Three Months Ended
		December 31,						December 31,
		2004
		(Restated)			2003			2004			2003
Net loss		$	(3,050,554	)	$	(17,029,329	)	$	(5,288,117	)	$	(9,151,738	)
Adjustments:
	Preferred dividend		(721,821	)		(120,000	)		(235,000	)		(40,000	)
Interest expense, including amortization of discount and debt issue costs			6,279,072			—			—			—
Change in fair value of derivatives embedded within convertible debt			(14,343,375	)		—			—			—
		$	(11,836,678	)	$	(17,149,329	)	$	(5,523,117	)	$	(9,191,738	)

11

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table represents the reconciliation of weighted average shares outstanding to basic and diluted weighted average shares outstanding.

	For the Nine Months Ended				For the Three Months Ended
	December 31,				December 31,
	2004
	(Restated)		2003		2004		2003
Basic:
Weighted average common shares outstanding — basic		34,117,235		30,303,080		35,135,181		30,887,597
Diluted:
Weighted average common shares outstanding — basic		34,117,235		30,303,080		35,135,181		30,887,597
Weighted average Senior Convertible Notes		4,983,333		—		—		—
Weighted average common shares outstanding — diluted		39,100,568		30,303,080		35,135,181		30,887,597

      The following table presents potential shares of common stock that are not included in the diluted net loss per share calculation above because to do so would be anti-dilutive for the periods indicated:

	For the Three Months Ended
	December 31,
	2004
	(Restated)		2003
Series I convertible preferred stock		1,300,000		—
Series G convertible preferred stock		—		—
Series H redeemable preferred stock		29,400		—
10% convertible debentures		—		5,000,000
13% convertible debentures		—		481,308
13.125% convertible debentures		—		416,667
Common stock warrants		2,712,436		377,250
Common stock options		1,744,419		1,444,245
Senior convertible notes		6,900,000		—

Comprehensive loss

      Comprehensive loss consists of net loss and foreign currency translation adjustments, and is presented in the accompanying consolidated statement of stockholders’ equity (deficit).

Recent accounting standards

      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,

12

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 April 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 a material impact on the Company’s financial position or results of operations for the nine months ended December 31, 2004.

      In December 2004, the FASB issued SFAS No. 123(Revised), “Share-Based Payment.” This statement replaces SFAS No. 123, “Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123(R) requires companies to apply a fair-value-based measurement method in accounting for share-based payment transactions with employees and to record compensation cost for all stock awards granted after the required effective date and to awards modified, repurchased, or cancelled after that date. In addition, the Company is required to record compensation expense (as previous awards continue to vest) for the unvested portion of previously granted awards that remain outstanding at the date of adoption. SFAS 123(R) will be effective for quarterly periods beginning after June 15, 2005, which is the Company’s second quarter ending September 30, 2005. Management has not yet determined the impact that SFAS 123(R) will have on its financial position and results of operations.

5. Restricted Cash

      Restricted cash consists of:

	December 31,			March 31,
	2004			2004
Reserve to repay notes payable to a former owner of TECOTA	$	7,244,489		$	—
Capital improvement reserve		4,000,000			—
Reserve to pay closing costs		2,711,803			—
Security deposits under bank loan agreement		1,681,400			—
Security deposits under operating leases		1,437,531			789,476
Escrow deposits under mortgage loan agreement		183,489			—
		17,258,712			789,476
Less: current portion		(11,637,692	)		(—	)
	$	5,621,020		$	789,476

13

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6. Deferred Costs Under Government Contract

      As of December 31, 2004, deferred costs consist mainly of specialized equipment which has not yet been installed as part of a technology infrastructure build-out under a government contract.

7. Mortgage Payable

      In connection with the purchase of TECOTA, the Company obtained a $49.0 million loan from CitiGroup Global Markets Realty Corp. This loan is secured by a first mortgage on the TECOTA building and a security interest in all then existing building improvements that we have made to the building, certain of our deposit accounts and any cash flows generated from customers by virtue of their activity at the TECOTA building. The loan bears interest at a rate per annum equal to the greater of (a) 6.75% and (b) 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 (see note 12).

      In connection with this financing, the Company issued to Citigroup Global Markets Realty Corp., for no additional consideration, warrants to purchase an aggregate of 5 million 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 $0.68, $0.74, $0.81 and $0.87, respectively. The warrants were valued by a third party expert 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. The Company has granted to Citigroup registration rights in connection with the warrants and the shares of its common stock into which these warrants are exercisable, including the right to have these warrants and shares registered by June 29, 2005.

8. Convertible Debt

      Convertible debt consists of:

	December 31,		March 31,
	2004		2004
Senior Convertible Notes, with a face value of $86.25 million, due June 15, 2009, and convertible into shares of the Company’s common stock at $1.25 per share. Interest at 9% is payable semi-annually, on each December 15 and June 15	$	53,017,846	$	—
Subordinated secured convertible debentures due April 30, 2006; converted into shares of the Company’s common stock at $0.50 per share during May 2004		—		24,095,239
Subordinated secured convertible debentures due December 31, 2005; converted into shares of the Company’s common stock at a weighted average conversion price of $2.14 per share during June 2004		—		10,300,000

14

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	December 31,		March 31,
	2004		2004
Subordinated secured convertible debentures due August 30, 2004; repaid or converted into shares of the Company’s common stock at a weighted average conversion price of $0.66 per share during the period from May to July 2004		—		2,750,000
	$	53,017,846	$	37,145,239
Less: Current portion of convertible debt		—		(250,000	)
Convertible debentures, less current portion	$	53,017,846	$	36,895,239

      On May 17, 2004, the Company provided certain debenture holders with notice of its intent to redeem $25.0 million of its 10% convertible debentures and $2.8 million of its 13.125% convertible debentures, effective June 1, 2004. As of June 1, 2004, the holders of all of the 10% convertible debentures and $2.5 million in principal of the 13.125% convertible debentures converted their debentures into an aggregate of 5,489,927 shares of the Company’s common stock.

      As a result of the extinguishment of notes payable and convertible debentures, the Company recognized 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.

      On June 14, 2004, the Company privately placed $86.25 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 $1.25 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 $0.95 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.

      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

15

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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, and the equity participation feature embedded in the Senior Convertible Notes were determined to be 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.

9. Derivatives

      The Senior Convertible Notes contain two embedded derivatives that require separate valuation from the Senior Convertible Notes: a conversion option that includes an early conversion incentive and an equity participation right. Upon registration of the Senior Convertible Notes in December 2004 under the Securities Act of 1933, as amended, a third embedded derivative, a takeover make whole premium due upon a change in control, required separate valuation from the Senior Convertible Notes. The Company estimated that the embedded derivative related to the equity participation rights and the takeover make whole premium did not have a significant value.

      The Company estimated that the embedded derivatives had an initial estimated fair value of approximately $35,483,000 and a December 31, 2004 estimated fair value of approximately $21,140,000, resulting from the conversion option. The change of $14,343,375 in the estimated fair value of the embedded derivative was recognized as other income in the nine months ended December 31, 2004. For the three months ended December 31, 2004, the change in the estimated fair value of the embedded derivative was $664,125.

      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 locked in the following LIBOR rate on $49.0 million of debt 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.

16

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

10. Notes Payable

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

      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 secured 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 (see note 12).

      The Company issued to the Falcon investors, for no additional consideration, warrants to purchase an aggregate of 15 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 $0.69, $0.75, $0.82 and $0.88, 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 capitalized and amounted to approximately $1,813,000. 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 Senior Secured Notes. The Company has granted the Falcon investors registration rights in connection with the shares of common stock, the warrants issued and the shares of the Company’s common stock into which these warrants are exercisable, including the right to have these warrants and shares registered by June 29, 2005. In connection with this financing, the Company incurred approximately $8,413,000 in debt issuance costs, including the estimated fair value of the stock warrants.

      At December 31, 2004, the Company also had a bank loan with an outstanding balance of 3.4 million Euros ($3.9 million at the December 31, 2004 exchange rate). On December 22, 2004, the maturity date of the loan was extended through June 2005. In connection with the extension, the Company deposited 1,250,000 Euros ($1,681,400 at the December 31, 2004 exchange rate) with the lender as security for the loan.

11. Changes in Stockholder’s Equity (Deficit)

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.

Conversion of preferred stock to common stock

      During September 2004, 10 shares of Series I preferred stock valued at $250,000 were converted to 33,334 shares of 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

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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.

Exercise of employee stock options

      During the nine months ended December 31, 2004, 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 $7.40 per share.

Issuance of warrants

      In December 2004, the Company issued warrants to purchase an aggregate of 20 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 warrants were accounted for as debt issuance costs at their estimated fair market value of $8,782,933 (see Note 7).

      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.

      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.

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.

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. See Note 13.

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.

Issuance of Common Stock

      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.

12. Commitments and Contingencies

      On February 4, 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

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

annual rent under this lease is approximately 800,000 euros ($1,091,000 at the December 31, 2004 exchange rate) exclusive of value added tax. Payment of rent under the lease agreement commences 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 ($648,000 at the December 31, 2004 exchange rate), with the bank issuing the guarantee.

      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.

13. 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 nine months ended December 31, 2004 and 2003 and balances with related parties included in the accompanying balance sheet as of December 31, 2004 and March 31, 2004.

	For the Nine Months Ended
	December 31,
	2004		2003
Rent expense	$	5,818,784	$	3,072,161
Services purchased from related parties		706,272		296,056
Property management and construction fees		144,826		150,880
Revenues from NAP de las Americas — Madrid		—		33,240
Interest income on notes receivable — related party		50,278		55,835
Interest income from shareholder		22,065		24,321
Interest expense		670,649		1,475,218

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	December 31,		March 31,
	2004		2004
Other assets	$	470,967	$	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.

14. Data Center Revenues

      Data center revenues consist of the following:

	For the Nine Months Ended				For the Three Months Ended
	December 31,				December 31,
	2004		2003		2004		2003
Colocation	$	14,932,363	$	7,235,913	$	5,186,135	$	2,871,041
Technology build out		9,393,896		—		9,393,896		—
Exchange point services		3,241,760		1,939,820		1,115,918		685,930
Managed and professional services		5,776,689		2,237,321		2,623,762		904,795
Contract termination fee		918		421,766		—		130,230
	$	33,345,626	$	11,834,820	$	18,319,711	$	4,591,996

15. Information About the Company’s Operating Segments

      As of December 31, 2004 and March 31, 2004, the Company had two reportable business segments, data center operations and real estate services. The data center operations segment provides Internet infrastructure and managed services in a data center environment. The real estate services segment constructs and manages real estate projects. 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 segments’ net operating results.

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following presents information about reportable segments:

	Data Center			Real Estate
For the Nine Months Ended December 31,	Operations			Services			Total
2004
Revenue	$	33,345,626		$	1,329,527		$	34,675,153
Loss from operations		(11,710,612	)		(80,631	)		(11,791,243	)
Net loss		(3,001,124	)		(49,430	)		(3,050,554	)
2003
Revenue	$	11,834,821		$	520,216		$	12,355,037
Loss from operations		(15,069,842	)		(327,992	)		(15,397,834	)
Net loss		(16,701,680	)		(327,649	)		(17,029,329	)
Assets, as of
December 31, 2004	$	184,777,513		$	—		$	184,779,897
March 31, 2004	$	77,101,579		$	331,124		$	77,432,703

      The following is a reconciliation of total segment loss from operations to loss before income taxes:

		For the Nine Months Ended
		December 31,
		2004			2003
Total segment loss from operations		$	(11,791,243	)	$	(15,397,834	)
Change in estimated fair value of derivatives embedded within convertible debt			14,343,375			—
Debt restructuring and extinguishment			3,420,956			8,475,000
Interest expense			(9,387,826	)		(10,498,899	)
Interest income			331,387			100,615
Other income			32,797			291,789
	Loss before income taxes	$	(3,050,554	)	$	(17,029,329	)

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

16. Supplemental Cash Flow Information

		For the Nine Months Ended
		December 31,
		2004		2003
Supplemental disclosures of cash flow information:
	Cash paid for interest	$	6,255,446	$	6,227,959
Non-cash operating, investing and financing activities:
	Warrants issued		1,522,650		546,050
	Conversion of notes payable to convertible debt		—		5,450,000
	Beneficial conversion feature on issuance of convertible debentures and preferred stock		—		9,500,000
	Warrants exercised and converted to equity		261,640		3,971
	Conversion of debt and related accrued interest to equity		262,500		9,437,345
	Conversion of preferred stock to equity		333		—
	Conversion of construction payables and accrued interest to equity		—		14,125,000
	Conversion of convertible debt and related accrued interest to equity		27,773,524		258,306
	Cancellation of warrants		—		26,575
	Non-cash preferred dividend		486,821		—
	Settlement of note receivable through extinguishment of convertible debt		418,200		—
	Shares issued to NAP de Las Americas — Madrid SA		—		3,652
	Settlement of notes receivable — related party by tendering Terremark stock		5,000,000		—

Item 4. Controls and Procedures.

     (a) Evaluation of Disclosure Controls and Procedures

      Our Chief Executive Officer and our Chief Financial Officer carried out an assessment with the participation of our Disclosure Committee, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(b) and 15d-15(b). Based upon, this assessment as of December 31, 2004, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level due to the existence of the material weaknesses described below.

      Our management and the Audit Committee do not expect that our disclosure controls and procedures or internal control over financial reporting will prevent all errors or all instances of fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control gaps and instances of fraud have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

because of simple errors or mistakes. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and any design may not succeed in achieving its stated goals under all potential future conditions.

     (b) Internal Control Over Financial Reporting

      In connection with the assessment of our internal control over financial reporting included in our Annual Report on Form 10-K, as amended by Form 10-K/ A filed on August 5, 2005, we determined that material weaknesses existed in our internal control over financial reporting. A material weakness is a control deficiency, or combination of control deficiencies, that results in a more than remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. These material weaknesses related to (i) maintaining adequate controls to restrict access to key financial applications and data, and controls over custody and processing of disbursements and of customer payments received by mail; and (ii) controls over the billing function to ensure invoices capture all services delivered to customers and that such services are invoiced and recorded accurately as revenue.

      As discussed in Note 2 to the condensed consolidated financial statements of this Form 10-Q/A, we restated the December 31, 2004 previously issued financial statements to correct the disclosure of diluted earnings per share. In connection with this restatement, management determined that another material weakness existed as of December 31, 2004. The Company did not maintain effective controls over the accounting for and calculation of earnings per share. Specifically, we did not maintain effective controls over the evaluation of interest expense and the impact of embedded derivatives within the Senior Convertible Notes in the calculation of diluted earnings per share under the “if converted” method and did not accurately calculate basic earnings per share under the two-class method, in accordance with generally accepted accounting principles. This control deficiency resulted in the restatement of the annual March 31, 2005 consolidated financial statements and interim June 30, 2004, September 30, 2004 and December 31, 2004 consolidated financial statements, as well as an audit adjustment in the September 30, 2005 interim consolidated financial statements. Additionally, this material weakness could result in a misstatement of disclosures of earnings per share that would result in a material misstatement of the annual or interim financial statements that would not be prevented or detected. Accordingly, management determined that this control deficiency constitutes a material weakness.

      In response to the material weaknesses identified, we implemented the following remediation actions:

•  We have restricted access to key financial information systems and data, particularly for employees with purchase order approval and check signing authority.

•  We have segregated the custody of payments received by mail from the processing of customer payments and from reconciliation of bank accounts.

      We have not fully remediated the previously described material weaknesses as we are still in the process of implementing the following remediation actions:

•  We are in the process of upgrading our main financial information system to be able to effectively monitor activities of database and system administrators.

•  We have set up a lockbox with our bank and are currently directing our customers to mail payments directly to the lockbox.

•  We are in the process of integrating our customer contract and billing data in one database. We continue to work with an information technology consultant to assist us with this integration. Concurrently, we are also in the process of establishing the procedures for an independent review of our invoices to customers.

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

•  We are currently evaluating potential steps that we can take to remediate the material weaknesses in our internal controls over financial reporting, including steps that can be taken in the process of documenting and evaluating the applicable accounting treatment for and calculation of earnings per share.

      Except for the remediation disclosed above, there were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The continued implementation of the described initiatives is among our highest priorities. Our Audit Committee will continually assess the progress and sufficiency of these initiatives and we will make adjustments as and when necessary. As of the date of this report, our management believes that the plan outlined above, when completed, will remediate the material weaknesses in internal control over financial reporting as described above.

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PART II — OTHER INFORMATION

Item 6.     Exhibits.

      The following exhibits, which are furnished with this Quarterly Report or incorporated herein by reference, are filed as part of this Quarterly Report.

Exhibit
Number		Exhibit Description
	31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

25

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 2^nd day of February, 2006.

TERREMARK WORLDWIDE, INC.

By:  /s/ MANUEL D. MEDINA

Manuel D. Medina,

Chairman of the Board,

President and Chief Executive Officer

(Principal Executive Officer)

By:  /s/ JOSÉ A. SEGRERA

Executive Vice President and

Chief Financial Officer

(Principal Accounting Officer)

26