10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q/A
Amendment No. 1

Form 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2006
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, an 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   x Non-accelerated filer  o

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

      Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at July 31, 2006
Common stock, $0.001 par value per share	43,713,559 shares

Explanatory Note

     This Amendment No. 1 to the Form 10-Q for the fiscal year ended June 30, 2006 (the “Original Filing”) of Terremark Worldwide, Inc. (the “Company”) is being filed solely to revise the number set forth opposite the “Deferred Revenue” line item of the Company’s Condensed Consolidated Statement of Cash Flows for the Three Months Ended June 30, 2006 under “Item 1 — Financial Statements” of the Original Filing so that such number reads “813,009” instead of “(813,009)” and to revise the number appearing under “Total” for the nine months ended March 31, 2007 in the Commitments and Contingencies table under “Item 2— Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Original Filing so that such number reads “$15,355,254” instead of “$15,355,204”.

     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.

Signature Page

     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 10th day of August, 2006.

TERREMARK WORLDWIDE, INC.
By:	/s/ MANUEL D. MEDINA
	Manuel D. Medina
	Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)

TERREMARK WORLDWIDE, INC.
By:	/s/ JOSE A. SEGRERA
	Jose A. Segrera
	Executive Vice President and Chief Financial Officer (Principal Accounting Officer)

Table of Contents

		Page
PART I. FINANCIAL INFORMATION			1
Item 1.	Financial Statements		1
	Condensed Consolidated Balance Sheets as of June 30, 2006 and March 31, 2006 (unaudited)		1
	Condensed Consolidated Statements of Operations for the three months ended June 30, 2006 and 2005 (unaudited)		2
	Condensed Consolidated Statement of Changes in Stockholders’ Equity for the three months ended June 30, 2006 (unaudited)		3
	Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2006 and 2005 (unaudited)		4
	Notes to Condensed Consolidated Financial Statements (unaudited)		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		19
Item 3.	Quantitative and Qualitative Disclosures about Market Risk.		32
Item 4.	Controls and Procedures.		33
PART II. OTHER INFORMATION			34
Item 1.	Legal Proceedings.		34
Item 1A.	Risk Factors.		34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		34
Item 3.	Defaults upon Senior Securities.		34
Item 4.	Submission of Matters to a Vote of Security Holders.		34
Item 5.	Other Information.		34
Item 6.	Exhibits.		34

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,			March 31,
	2006			2006
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	8,346,699		$	20,401,934
Restricted cash		979,045			474,073
Accounts receivable, net of allowance for doubtful accounts of $400,000 and $200,000		18,161,896			10,951,827
Current portion of capital lease receivable		2,514,549			2,507,029
Prepaid expenses and other current assets		2,512,820			2,558,942
Total current assets	$	32,515,009		$	36,893,805
Restricted cash		3,428,898			3,814,842
Property and equipment, net of accumulated depreciation of $28,835,809 and $26,331,368		130,457,033			129,893,318
Debt issuance costs, net of accumulated amortization of $3,277,734 and $2,810,403		6,485,740			6,963,232
Other assets		3,020,737			2,695,616
Capital lease receivable, net of current portion		3,382,191			4,004,449
Intangibles, net of accumulated amortization of $715,000 and $520,000		3,485,000			3,680,000
Goodwill		16,771,189			16,771,189
Total assets	$	199,545,797		$	204,716,451
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of debt and capital lease obligations	$	1,870,566		$	1,890,108
Accounts payable and other current liabilities		20,626,763			20,822,624
Interest payable		1,918,759			3,833,288
Series H redeemable convertible preferred stock: $.001 par value, 294 shares issued and outstanding, at liquidation value		654,190			646,693
Total current liabilities		25,070,278			27,192,713
Mortgage payable, less current portion		45,736,149			45,795,552
Convertible debt		60,532,366			59,102,452
Derivatives embedded within convertible debt, at estimated fair value		9,444,375			24,960,750
Notes payable, less current portion		26,214,051			25,614,140
Deferred rent and other liabilities		3,266,194			3,267,481
Capital lease obligations, less current portion		750,173			852,311
Deferred revenue		4,907,746			4,094,735
Total liabilities		175,921,332			190,880,134
Commitments and contingencies		—			—
Stockholders’ equity:
Series I convertible preferred stock: $.001 par value, 323 and 339 shares issued and outstanding (liquidation value of approximately $8.2 million and $8.6 million)		1			1
Common stock: $.001 par value, 100,000,000 shares authorized; 44,578,458 and 44,490,352 shares issued		44,578			44,490
Common stock warrants		12,946,698			13,251,660
Common stock options		582,004			582,004
Additional paid-in capital		292,034,924			291,607,528
Accumulated deficit		(274,294,364	)		(283,823,243	)
Accumulated other comprehensive loss		(169,691	)		(317,756	)
Treasury stock: 865,202 shares		(7,220,637	)		(7,220,637	)
Notes receivable		(299,048	)		(287,730	)
Total stockholders’ equity		23,624,465			13,836,317
Total liabilities and stockholders’ equity	$	199,545,797		$	204,716,451

See accompanying notes to condensed consolidated financial statements.

1

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

					For the Three Months Ended
					June 30,
					2006			2005
Revenues
	Data center — services				$	21,403,381		$	10,671,120
			Operating revenues			21,403,381			10,671,120
Expenses
	Data center operations — services, excluding depreciation					11,612,206			7,011,649
	General and administrative					4,020,851			4,180,644
	Sales and marketing					2,744,062			1,759,074
	Depreciation and amortization					2,699,915			1,864,461
			Operating expenses			21,077,034			14,815,828
				Income (loss) from operations		326,347			(4,144,708	)
Other income (expenses)
	Change in fair value of derivatives embedded within convertible debt					15,516,375			(464,025	)
	Interest expense					(6,617,585	)		(5,996,853	)
	Interest income					303,081			460,173
	Other, net					661			14,141
		Total other income (expenses)				9,202,532			(5,986,564	)
			Income (loss) before income taxes			9,528,879			(10,131,272	)
	Income taxes					—			—
Net income (loss)						9,528,879			(10,131,272	)
Preferred dividend						(164,100	)		(187,789	)
Earnings attributable to participating security holders						(1,458,477	)		—
Net income (loss) attributable to common stockholders					$	7,906,302		$	(10,319,061	)
Net income (loss) per common share:
Basic					$	0.18		$	(0.25	)
Diluted					$	(0.05	)	$	(0.25	)
Weighted average common shares outstanding — basic						43,677,412			41,842,567
Weighted average common shares outstanding — diluted						52,124,974			41,842,567

See accompanying notes to condensed consolidated financial statements.

2

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

				Common Stock
				Par Value $.001															Accumulated
													Additional						Other
		Preferred		Issued				Common Stock			Common Stock		Paid-in			Accumulated			Comprehensive			Treasury			Notes
		Stock Series I		Shares		Amount		Warrants			Options		Capital			Deficit			Loss			Stock			Receivable			Total
Balance at March 31, 2006		$	1		44,490,352	$	44,490	$	13,251,660		$	582,004	$	291,607,528		$	(283,823,243	)	$	(317,756	)	$	(7,220,637	)	$	(287,730	)	$	13,836,317
Conversion of preferred stock			—		53,334		53		—			—		(53	)		—			—			—			—			—
Exercise of stock options			—		34,772		35		—			—		193,599			—			—			—			—			193,634
Warrants issued for services			—		—		—		92,988			—		—			—			—			—			—			92,988
Accrued dividends on preferred stock			—		—		—		—			—		(164,100	)		—			—			—			—			(164,100	)
Foreign currency translation adjustment			—		—		—		—			—		—			—			—			—			(11,318	)		(11,318	)
Expiration of warrants					—		—		(397,950	)		—		397,950			—			—			—			—			—
Other comprehensive income
	Foreign currency translation adjustment		—		—		—		—			—		—			—			148,065			—			—			148,065
	Net income		—		—		—		—			—		—			9,528,879			—			—			—			9,528,879
	Total comprehensive income		—		—		—		—			—		—			9,528,879			148,065			—			—			9,676,944
Balance at June 30, 2006		$	1		44,578,458	$	44,578	$	12,946,698		$	582,004	$	292,034,924		$	(274,294,364	)	$	(169,691	)	$	(7,220,637	)	$	(299,048	)	$	23,624,465

See accompanying notes to condensed consolidated financial statements.

3

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

			For the Three Months Ended June 30,
			2006			2005
			(Unaudited)
Cash flows from operating activities:
Net income (loss)			$	9,528,879		$	(10,131,272	)
Adjustments to reconcile net income (loss) to net cash used in operating activities
	Depreciation and amortization of long-lived assets			2,699,915			1,864,461
	Change in estimated fair value of embedded derivatives			(15,516,375	)		464,025
	Accretion on convertible debt and mortgage payables			1,558,358			1,266,216
	Amortization of discount on notes payable			320,577			259,737
	Interest payment in kind on notes payable			279,334			271,875
	Amortization of debt issue costs			477,492			460,528
	Provision for bad debt			200,000			111,465
	Other			(8,279	)		(72,432	)
	Warrants issued for services			—			25,056
	Loss on disposal of property and equipment			—			174,747
	(Increase) decrease in:
		Restricted cash		(119,028	)		(329,114	)
		Accounts receivable		(7,410,069	)		(1,665,010	)
		Capital lease receivable		456,935			371,596
		Prepaid and other assets		41,726			(867,808	)
	Increase (decrease) in:
		Accounts payable and accrued expenses		2,198,087			(533,440	)
		Interest payable		(1,914,529	)		(1,915,678	)
		Deferred revenue		813,009			567,115
		Deferred rent and other liabilities		96,484			(265,817	)
		Net cash used in operating activities		(6,297,484	)		(9,943,750	)
Cash flows from investing activities:
	Purchases of property and equipment			(5,455,883	)		(1,872,671	)
		Net cash used in investing activities		(5,455,883	)		(1,872,671	)
Cash flows from financing activities:
	Payments on loans and mortgage payable			(174,120	)		(205,612	)
	Payments under capital lease obligations			(151,682	)		(83,035	)
	Payments of preferred stock dividends			(169,700	)		—
	Proceeds from exercise of stock options and warrants			193,634			176,067
		Net cash used in financing activities		(301,868	)		(112,580	)
		Net decrease in cash		(12,055,235	)		(11,929,001	)
Cash and cash equivalents at beginning of period				20,401,934			44,001,144
Cash and cash equivalents at end of period			$	8,346,699		$	32,072,143

See accompanying notes to condensed consolidated financial statements.

4

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Business and Organization

      Terremark Worldwide, Inc. (the “Company” or “Terremark”) is a leading operator of integrated Tier-1 Internet exchanges and a global provider of managed IT infrastructure solutions for government and commercial sectors. Terremark delivers its portfolio of services from seven locations in the U.S., Europe and Asia. Terremark’s flagship facility, the NAP of the Americas, located in Miami, Florida, is its model for carrier-neutral Internet exchanges and is designed and built to disaster-resistant standards with maximum security to house mission-critical systems infrastructure.

2. Summary of Significant Accounting Policies

      The accompanying unaudited condensed consolidated financial statements include the accounts of Terremark Worldwide, Inc. and all entities in which Terremark Worldwide, Inc. has a controlling voting interest (“subsidiaries”) required to be consolidated in accordance with generally accepted accounting principles in the United States “U.S. GAAP”. All significant intercompany accounts and transactions between consolidated companies have been eliminated in consolidation.

Reclassifications

      Certain reclassifications have been made to the prior period’s balance sheet to conform to the current presentation.

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. Areas where the nature of the estimate makes it reasonably possible that actual results could materially differ from the amounts estimated include revenue recognition and allowance for bad debts, derivatives, income taxes, impairment of long-lived assets, stock-based compensation and goodwill.

Revenue and profit recognition

      Data center revenues consist of monthly recurring fees for colocation, exchange point, and managed and professional services fees. It also includes monthly rental income for unconditioned space in the NAP of the Americas. Revenues 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 and related direct costs are deferred and recognized ratably over the expected life of the customer installation. Effective April 1, 2005, the Company revised the estimated life of customer installations from 12 to 48 months. The Company has determined that this change in accounting estimate does not and will not have a material impact on net earnings in current and future periods. Managed and professional services fees are recognized in the period in which the services are provided. Revenue from contract settlements is generally recognized when collectibility is reasonably assured and no remaining performance obligation exists.

      In accordance with Emerging Issues Task Force (EITF) Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables”, when more than one element such as equipment, installation and colocation services are contained in a single arrangement, the Company allocates revenue between the elements based on acceptable fair value allocation methodologies, provided that each element meets the criteria for

5

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

treatment as a separate unit of accounting. An item is considered a separate unit of accounting if it has value to the customer on a stand alone basis and there is objective and reliable evidence of the fair value of the undelivered items. The fair value of the undelivered elements is determined by the price charged when the element is sold separately, or in cases when the item is not sold separately, by the using other acceptable objective evidence.

      Revenue is recognized, including applicable sales tax, 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 collectibility 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 its customers. If the Company determines that collectibility is not reasonably assured, the fee is deferred and revenue is recognized at the time collection becomes reasonably assured, which is generally upon receipt of cash.

      The Company 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.

      The Company’s customer contracts generally require the Company to meet certain service level commitments. If the Company does not meet required service levels, it may be obligated to provide credits, usually a month of free service. Such credits, to date, have been insignificant.

Derivatives

      The Company has, in the past, used financial instruments, including swaps and cap agreements, to manage exposure to movements in interest rates. The use of these financial instruments modifies the exposure of these risks with the intent to reduce the risk or cost to the Company.

      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 the Company’s 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, if any, that the Company may eventually pay to settle these embedded derivatives.

6

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Significant concentrations

      Agencies of the federal government accounted for approximately 23% of data center revenues for the three months ended June 30, 2006. The agencies of the federal government and Blackbird Technologies accounted for approximately 26% and 13%, respectively, of data center revenues for the three months ended June 30, 2005.

     Stock-Based Compensation

      On August 9, 2005, the Company’s Board of Directors adopted the 2005 Executive Incentive Compensation Plan, which was approved by the Company’s shareholders on September 23, 2005. This comprehensive plan superseded and replaced all of the Company’s pre-existing stock option plans. Under the 2005 Executive Incentive Compensation Plan, the Compensation Committee has the authority to grant stock-based incentive awards to executives, key employees, directors, and consultants, including stock options, stock appreciation rights, or SARs, nonvested stock (commonly referred to as restricted stock), deferred stock, other stock-related awards and performance or annual incentive awards that may be settled in cash, stock or other property (collectively, the “Awards”). Under the 2005 Executive Incentive Compensation Plan, the Company has reserved for issuance an aggregate of 1,000,000 shares of common stock. Awards granted vest over three years with one third vesting per year from the date of grant and generally expire ten years from the date of grant. The Company has granted all current outstanding shares under various pre-existing stock option plans. These plans permit the grant of options for up to 8.7 million shares of common stock.

      The Company adopted the provisions of, and accounts for stock-based compensation in accordance with SFAS No. 123(R), “Share-Based Payment,” and related pronouncements (“SFAS 123(R)”), during the first quarter ended June 30, 2006. The Company elected the modified-prospective method, under which prior periods are not revised for comparative purposes. Under the fair value recognition provisions of this statement, stock-based compensation cost is measured at the grant date for all stock-based awards made to employees and directors based on the fair value of the award using an option-pricing model and is recognized as expense over the requisite service period, which is generally the vesting period. The Company has two types of equity awards which have been impacted by SFAS 123(R): (i) stock options and (ii) nonvested stock. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) providing supplemental implementation guidance for SFAS 123(R). The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).

      The Company currently uses the Black-Scholes option-pricing model to determine the fair value of stock options granted under the company’s stock option plans. The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. These variables include the Company’s expected stock price volatility over the term of the awards; actual and projected employee stock option exercise behaviors, which is referred to as expected term; risk-free interest rate and expected dividends. The Company anticipates using this pricing model for all future grants.

      Prior to the adoption of SFAS 123(R), the Company accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, as allowed under SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). Under the intrinsic value method, no stock-based compensation expense for employee stock options had generally been recognized in the Company’s consolidated statements of operations because the exercise price of its stock options granted to employees and directors since the date of our initial public offering generally equaled the fair market value of the underlying stock at the date of grant.

7

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Company estimates the expected term of options granted by taking the average of the vesting term and the contractual term of the option, as illustrated in SAB 107. The Company estimates the volatility of its common stock by using its historical volatility that the Company believes is the best representative of its future volatility in accordance with SAB 107. The Company bases the risk-free interest rate that it uses in its option-pricing models on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on its equity awards. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in its option-pricing models.

      If factors change and the Company employs different assumptions for estimating stock-based compensation expense in future periods or if it decides to use a different valuation model in the future, the future periods may differ significantly from what the Company has recorded in the current period and could materially affect its operating results, net income or loss and net income or loss per share.

      In 2005, the Company used the Black-Scholes option-pricing model to determine the fair value of stock options. The assumptions used to value stock options were as follows:

	Three Months
	Ended June 30,
	2005
Risk-free rate		3.69% - 4.13%
Volatility		113% - 118%
Expected life		5 years
Expected dividends		0%

      Prior to the adoption of SFAS No. 123(R), the Compensation Committee of the Company’s Board of Directors approved the vesting, effective as of March 31, 2006, of all unvested stock options previously granted under the Company’s stock option and executive compensation plans. The options affected by this accelerated vesting had exercise prices ranging from $2.79 to $16.50. As a result of the accelerated vesting, options to purchase approximately 464,000 shares became immediately exercisable. All other terms of these options remain unchanged. The decision of the Compensation Committee to accelerate the vesting of all outstanding options was made primarily to reduce compensation expense that otherwise would be recorded starting with the three months ending June 30, 2006. The future compensation expense that will be avoided is approximately $1,500,000, $900,000, and $170,000 in the fiscal years ended March 31, 2007, 2008, and 2009, respectively. The Company did not grant options during the three months ended June 30, 2006.

      A summary of the status of the Company’s stock options, as of March 31, 2006, and June 30, 2006, and changes during the three months ended June 30, 2006 is presented below:

							Weighted
					Weighted		Average
					Average		Remaining		Aggregate
		Shares			Exercise Price		Contractual Term		Intrinsic Value
Outstanding at March 31, 2006			2,261,885		$	11.24
	Granted		—			—
	Exercised		(29,455	)		5.73
	Forfeited		(32,277	)		9.41
Outstanding at June 30, 2006			2,200,153		$	11.36		6.34	$	(17,067,010	)
Exercisable at June 30, 2006			2,200,153		$	11.36		6.34	$	(17,067,010	)

8

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Total intrinsic value of stock options exercised during the quarter ended June 30, 2006 was approximately $58,000. The following table summarizes information about stock options outstanding and exercisable at June 30, 2006:

					Weighted
					Average		Weighted				Weighted
					Remaining		Average				Average
	Vested		Unvested		Contractual Life		Exercise Price		Number		Exercise Price
Range of Exercise Prices	Options		Options		(Years)		(Outstanding)		Exercisable		(Exercisable)
$2.50 — 5.00		333,500		—		7.87	$	3.94		333,500	$	3.94
$5.01 — 10.00		1,326,654		—		7.21		6.31		1,326,654		6.31
$10.01 — 11.50		15,450		—		1.80		10.77		15,450		10.77
$11.51 — 20.00		96,667		—		4.24		15.61		96,667		15.61
$20.01 — 30.00		114,520		—		0.61		29.32		114,520		29.32
$30.01 — 50.00		313,362		—		3.96		32.78		313,362		32.78
		2,200,153		—		6.34	$	11.36		2,200,153	$	11.36

      Prior to the adoption of SFAS No. 123(R), the Company provided the disclosures required under SFAS No. 123, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation  — Transition and Disclosures.” For the three months ended June 30, 2005, all employee stock option awards were granted with an exercise price equal to the market value of the underlying common stock on the date of grant. Pro forma information for the three months ended June 30, 2005 is as follows:

Net loss attributable to common stockholders as reported	$	(10,319,061	)
Incremental stock-based compensation if the fair value method had been adopted		(193,924	)
Pro forma net loss attributable to common stockholders	$	(10,512,985	)
Basic loss per common share — as reported	$	(0.25	)
Basic loss per common share — pro forma	$	(0.25	)
Diluted loss per common share — as reported	$	(0.25	)
Diluted loss per common share — pro forma	$	(0.25	)

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 determines the fair value for non-employee warrants using the Black-Scholes option-pricing model with the same assumptions used for employee grants, except for the 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

9

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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.

Income (loss) per share

      The Company’s 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.

      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 income (loss) attributable to common stockholders to the numerator used for diluted loss per share:

		For the three months ended
		June 30,
		2006			2005
Net income (loss) attributable to common stockholders		$	7,906,302		$	(10,319,061	)
Adjustments:
	Earnings attributable to participating security holders		1,458,477			—
	Interest expense, including amortization of discount and debt issue costs		3,672,978			—
	Change in fair value of derivatives embedded within convertible debt		(15,516,375	)		—
Numerator for diluted loss per share:		$	(2,478,618	)	$	(10,319,061	)

10

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

	For the Three Months Ended
	June 30,
	2006		2005
Basic:
Weighted average common shares outstanding		43,677,412		41,842,567
Weighted average common shares outstanding — basic		43,677,412		41,842,567
Diluted:
Weighted average common shares outstanding		43,677,412		41,842,567
Senior Convertible Notes		6,900,000		—
Early conversion incentive		1,547,562		—
Weighted average common shares outstanding — diluted		52,124,974		41,842,567

      Unless otherwise included above, the following table sets forth 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 (unaudited):

	June 30,
	2006		2005
Series I convertible preferred stock		1,127,780		1,230,000
Series H redeemable convertible preferred stock		29,400		29,400
Common stock warrants		2,637,136		2,719,636
Common stock options		2,200,153		2,085,289
Senior Convertible Notes		—		6,900,000

Other comprehensive income

      Other comprehensive loss presents income of all changes in stockholder’s equity except for changes resulting from transactions with stockholders in their capacity as stockholders. Other comprehensive loss consists of net income (loss) and foreign currency translation adjustments, which is presented in the accompanying consolidated statement of stockholders’ equity.

      The Company’s foreign operations generally use the local currency as their functional currency. Assets and liabilities of these operations are translated at the exchange rates in effect on the balance sheet date. If exchangeability between the functional currency and the U.S. dollar is temporarily lacking at the balance sheet date, the first subsequent rate at which exchanges can be made is used to translate assets and liabilities.

Recent accounting standards

      In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an Amendment of APB Opinion No. 29.” SFAS No. 153 addresses the measurement of exchanges of nonmonetary assets. It eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets contained in APB Opinion No. 29 and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of an entity are expected to change significantly as a

11

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

result of the exchange. SFAS No. 153 is effective for fiscal periods beginning after June 15, 2005. As the provisions of SFAS No. 153 are to be applied prospectively, the adoption of SFAS No. 153 will not have an impact on the Company’s historical financial statements; however, the Company will assess the impact of the adoption of this pronouncement on any future nonmonetary transactions that the Company enters into, if any.

      In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Instruments,” an amendment of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities-a replacement of FASB Statement No. 125” (“SFAS No. 155”). SFAS No. 155 improves the financial reporting of certain hybrid financial instruments by requiring more consistent accounting that eliminates exemptions and provides a means to simplify the accounting for such instruments. Specifically, SFAS No. 155 allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. SFAS No. 155 also (i) clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133; (ii) establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; (iii) clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives and (iv) amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Company is currently in the process of evaluating the impact that the adoption of SFAS No. 155 will have on its financial position, results of operations and cash flows.

      In April 2006, the FASB issued FASB Staff Position No. FIN 46(R)-6 (“FSP FIN 46(R)-6”), which addresses how a reporting enterprise should determine the variability to be considered in applying FASB Interpretation No. 46 “Consolidation of Variable Interest Rate Entities”, as amended (“FIN No. 46(R)”). The variability that is considered in applying FIN 46(R) affects the determination of (a) whether the entity is a variable interest entity, (b) which interests are variable interests in the entity and (c) which party, if any, is the primary beneficiary of the variable interest entity. That variability will affect any calculation of expected losses and expected residual returns if such a calculation is necessary. FSP FIN 46(R)-6 is effective beginning the first day of the first reporting period beginning after June 15, 2006. The Company is currently in the process of evaluating the impact that the adoption of FSP FIN 46(R)-6 will have, if any, on its financial position, results of operations and cash flows.

      In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions. This interpretation requires the Company to recognize the impact of a tax position if that position is more likely than not to be sustained based on the technical merits of the position. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company is currently evaluating the impact that the adoption of FIN 48 will have, if any, on its financial position, results of operations and cash flows.

12

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3. 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 the existing building improvements that the Company 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 (5.37% at June 30, 2006) plus 4.75%, and matures in February 2009. This mortgage loan includes numerous covenants imposing significant financial and operating restrictions on the Company’s business. See Note 7.

      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 deferred and amounted to approximately $1,570,000. The discount to the debt principal and the debt issuance costs are being amortized to interest expense using the effective interest method over the term of the mortgage loan. The effective interest rate of the mortgage loan is 8.6%.

4. Restricted Cash

      Restricted cash consists of:

	June 30,			March 31,
	2006			2006
Capital improvements reserve	$	1,795,357		$	2,217,044
Security deposits under operating leases		1,633,541			1,597,798
Escrow deposits under mortgage loan agreement		979,045			474,073
		4,407,943			4,288,915
Less: current portion		(979,045	)		(474,073	)
	$	3,428,898		$	3,814,842

6. Convertible Debt

      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 $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 effective interest rate of this debt is 23.4%.

13

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      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 $90 per $1,000 of principal if the change in control takes place before June 15, 2008 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 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 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 the takeover make whole premium due upon a change of control 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.

6. 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 feature 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 a March 31, 2006 estimated fair value of $24,960,750 and a June 30, 2006 estimated fair value of $9,444,375 resulting from the conversion option.

14

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The change of $15,516,375 in the estimated fair value of the embedded derivatives was recognized as other income in the three months ended June 30, 2006.

7. 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 contemporaneously 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. The effective interest rate of these notes is 21.4%.

      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 the credit.

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

8. Series H Redeemable Convertible Preferred Stock

      On April 5, 2006, the Company received a notice from the holder of all 294 shares of the Company’s Series H Convertible Preferred Stock notifying the Company that the holder had exercised its right to require the Company to redeem all of such shares. The Company expects to redeem such shares sometime in the second quarter of the Company’s 2007 fiscal year. Accordingly, the Series H convertible preferred stock is presented as a current liability in the accompanying condensed consolidated balance sheet.

15

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9. Changes in Stockholder’s Equity

Exercise of employee stock options

      During the three months ended June 30, 2006, the Company issued 34,772 shares of its common stock in conjunction with the exercise of options. The exercise price of the options ranged from $3.30 to $6.80.

Issuance of warrants

      In April 2006, the Company issued 12,500 warrants with an estimated fair value of $92,988 in connection with consulting services.

Conversion of preferred stock

      During the three months ended June 30, 2006, 16 shares of the Series I preferred stock were converted to 53,334 shares of common stock.

Loans issued to employees

      In connection with the acquisition of Dedigate, the Company extended loans to certain Dedigate employees to exercise their Dedigate stock options. The Dedigate shares received upon exercise of those options were then exchanged for shares of the Company’s common stock under the terms of the acquisition. The loans are evidenced by full recourse promissory notes, bear interest at 2.50% per annum, mature in September 2006 and are collateralized by the shares of stock acquired with the loan proceeds. The outstanding principal balance on such loans, net of repayments, is reflected as a reduction to stockholders’ equity in the accompanying balance sheet at June 30, 2006.

10. 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 three months ended June 30, 2006 and 2005 and balances with related parties included in the accompanying balance sheet as of June 30, 2006 and March 31, 2006:

	For the Three Months Ended
	June 30,
	2006		2005
Services purchased from Fusion Telecommunications International, Inc.		455,199		285,657
Interest income from shareholder		7,719		7,032
Services provided to a related party		31,845		8,950
Consulting fees to directors		190,000		102,500

	June 30,		March 31,
	2006		2006
Other assets	$	458,278	$	452,444
Note receivable — related party		305,608		287,730
Accrued consulting fees		211,800		—

      The Company’s Chief Executive Officer has a minority interest in Fusion Telecommunications International, Inc. The Company has entered into consulting agreements with three members of its board

16

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

of directors, engaging them as independent consultants. One agreement provided for an annual compensation of $250,000 and expired in May 2005. The other two agreements provide for an annual compensation aggregating $160,000. In the three months ended June 30, 2006, a member of the Company’s board of directors provided consulting services in connection with NAP development activities.

11. Data Center Revenues

      Data center revenues consist of the following:

	For the Three Months Ended
	June 30,
	2006		2005
Colocation	$	9,186,763	$	6,047,603
Managed and professional services		10,303,873		3,307,424
Exchange point services		1,912,745		1,316,093
	$	21,403,381	$	10,671,120

12. Information About the Company’s Operating Segments

      As of March 31, 2006 and June 30, 2006, 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. This segment also provides NAP development and technology infrastructure build out services. All other real estate activities are included in real estate services. The real estate segment provided construction and property management services. 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.

      The following presents information about reportable segments:

		Data Center			Real Estate
For the Three Months Ended June 30,		Operations			Services		Total
2006
Revenues		$	21,403,381		$	—	$	21,403,381
Income from Operations			326,347			—		326,347
Net income			9,528,879			—		9,528,879
2005
Revenues		$	10,671,120		$	—	$	10,671,120
Loss from Operations			(4,153,604	)		8,896		(4,144,708	)
Net loss			(10,140,168	)		8,896		(10,131,272	)
Assets as of
	June 30, 2006	$	199,545,797		$	—	$	199,545,797
	March 31, 2006		204,716,451			—		204,716,451

17

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

	For the Three Months Ended
	June 30,
	2006			2005
Total segment income (loss) from operations	$	326,347		$	(4,144,708	)
Change in fair value of derivatives embedded within convertible debt		15,516,375			(464,025	)
Interest expense		(6,617,585	)		(5,996,853	)
Interest income		303,081			460,173
Other, net		661			14,141
Income (loss) before income taxes	$	9,528,879		$	(10,131,272	)

13. Supplemental Cash Flow Information

	For the Three Months Ended
	June 30,
	2006		2005
Supplemental disclosure of cash flow information:
Cash paid for interest	$	5,896,353	$	5,625,154
Non-cash operating, investing and financing activities:
Assets acquired under capital leases		68,287		—
Non-cash preferred dividends		164,100		187,789
Warrants issued for services		92,988		—

18

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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

Overview

      We operate Internet exchange points from which we provide colocation, interconnection and managed services to the government and commercial sectors. We deliver our portfolio of services from seven locations in the U.S., Europe and Asia. Our flagship facility, the NAP of the Americas, located in Miami, Florida, is the model for our carrier-neutral Internet exchanges and is designed and built to disaster-resistant standards with maximum security to house mission-critical infrastructure. Our secure presence in Miami, a key gateway to North American, Latin American and European telecommunications networks, has enabled us to establish customer relationships with U.S. federal government agencies, including the Department of State and the Department of Defense. We have been awarded sole-source contracts for which only one source of the required services is believed to be available, with the U.S. federal government, which we believe will allow us to both further penetrate the government sector and continue to attract federal information technology providers. As a result of our primarily fixed cost operating model, we believe that incremental customers and revenues will result in improved operating margins and increased profitability.

      We generate revenue by providing high quality Internet infrastructure on a platform designed to reduce network connectivity costs. We provide our customers with the following:

•  space to house equipment and network facilities in immediate proximity to Internet and communications networks;

•  the platform to exchange telecommunications and Internet traffic and access to network-based services; and

•  related professional and managed services such as our network operations center, outsourced storage, dedicated hosting and remote monitoring.

      We differentiate ourselves from our competitors through the security and strategic location of our facilities and our carrier-neutral model, which provides access to a critical mass of Internet and telecommunications connectivity.

19

      The immediate proximity of our facilities to major fiber routes with access to North America, Latin America and Europe has attracted numerous telecommunications carriers, such as AT&T, Global Crossing, Latin America Nautilus (a business unit of Telecom Italia), Progress Telecom, Sprint Communications and T-Systems (a business unit of Deutsche Telecom), to colocate their equipment with us in order to better service their customers. This network density, which allows our customers to reduce their connectivity costs, combined with the security of our facilities, has attracted government sector customers, including Blackbird Technologies, the City of Coral Gables, Florida, Miami-Dade County, Florida, SRA International and the United States Southern Command. Additionally, we have had success in attracting content providers and enterprises such as Citrix, Google, Internap, Miniclip, NTT/ Verio, VeriSign, Bacardi USA, Corporación Andina de Fomento, Florida International University, Intrado, Jackson Memorial Hospital of Miami and Steiner Leisure.

Results of Operations

      Results of Operations for the Three Months Ended June 30, 2006 as Compared to the Three Months Ended June 30, 2005.

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

	For the Three
	Months Ended
	June 30,
	2006			2005
U.S. Operations		85	%		98	%
Outside U.S		15	%		2	%
		100	%		100	%

      Data center revenues consist of:

	For the Three Months Ended June 30,
	2006				2005
Colocation	$	9,186,763	43	%	$	6,047,603	57	%
Managed and professional services		10,303,873	48	%		3,307,424	31	%
Exchange point services		1,912,745	9	%		1,316,093	12	%
	$	21,403,381	100	%	$	10,671,120	100	%

      The increase in data center revenues is mainly due to both an increase in our deployed customer base and an expansion of services to existing customers. Our total customer base increased from 280 customers as of June 30, 2005 to 533 customers as of June 30, 2006. Included in revenues and customer count are the results of Dedigate, N.V., a European managed dedicated hosting provider, which we acquired on August 5, 2005. Data center revenues consist of:

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

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

•  managed and professional services, such as network management, managed web hosting, outsourced network operating center services, network monitoring, procurement and installation of equipment, procurement of connectivity, managed router services, secure information services, technical support and consulting.

      Our utilization of total net colocation space increased to 12.9% as of June 30, 2006 from 9.1% as of June 30, 2005. Our utilization of total net colocation space represents the percentage of space billed versus total space available for customers.

      The increase in managed and professional services is mainly due to increases of approximately $2.5 million in managed services generated by Dedigate and $1.6 million in additional managed services

20

provided under government contracts. We also earned $2.1 million in the three months ended June 30, 2006 for professional services related to the design and development of NAPs in the Canary Islands and the Dominican Republic. The remainder of the increase is primarily the result of an increase in orders from both existing and new customers as reflected by the growth in our customer count and utilization of space as discussed above.

      The increase in exchange point services is mainly due to an increase in cross-connects billed to customers. Cross-connects billed to customers increased to 4,245 as of June 30, 2006 from 2,836 as of June 30, 2005.

      We anticipate an increase in revenue from colocation, exchange point and managed services as we add more customers to our network of NAPs, sell additional services to existing customers and introduce new products and services. We anticipate that the percentage of revenue derived from public sector customers will fluctuate depending on the timing of exercise of expansion options under existing contracts and the rate at which we sell services to the public sector. We anticipate that public sector revenues will continue to represent a significant portion of our revenues for the foreseeable future.

      Data Center Operations Expenses. Data center expenses increased $4.6 million to $11.6 million for the three months ended June 30, 2006 from $7.0 million for the three months ended June 30, 2005. Data center operations expenses consist mainly of operations personnel, procurement of connectivity and equipment, technical and colocation space rental costs, electricity, chilled water, insurance, property taxes, and security services. The increase is the result of increases of $1.2 million in managed services costs, $1.1 million in personnel costs, $616,000 in electricity and chilled water costs, and $509,000 in technical and colocation space rental costs.

      The increase in connectivity costs is mainly due to an increase in revenues from managed services and new bandwidth costs for interconnecting our Internet exchange point facilities. The increase in managed service costs includes a $263,000 increase in the procurement of connectivity and a $518,000 increase in the cost of equipment resales. The remainder of the increase is primarily the result of an increase in orders from both existing and new customers as reflected by the growth in our customer count and utilization of space as discussed above. The increase in personnel costs is mainly due to an increase in operations and engineering staff levels. Our staff levels increased to 188 employees as of June 30, 2006 from 133 as of June 30, 2005. The increase in the number of employees is mainly attributable to the hiring of personnel to work under existing and anticipated customer contracts, the expansion of operations in the Madrid NAP, the Brazil NAP and NAP-West, and the acquisition of Dedigate. The increase in power and chilled water costs is mainly due an increase in power utilization and chilled water consumption as a result of customer and colocation space growth, as well as an increase in the cost of power.

      The increase in technical and colocation space costs is the result of new leases in Hong Kong, Singapore, and Netherlands. We also have new leases in Gent and Amsterdam as a result of the acquisition of Dedigate.

      General and Administrative Expenses. General and administrative expenses decreased approximately $160,000 to $4.0 million for the three months ended June 30, 2006 from $4.2 million for the three months ended June 30, 2005. General and administrative expenses consist primarily of payroll and related expenses, professional service fees, travel, rent, and other general corporate expenses. This decrease was primarily due to a decrease of approximately $245,000 in office rent costs and $115,000 in professional fees. The decrease in office rent is mainly due to the lease termination of certain additional office space in Miami. The decrease in professional services is mainly due to a decrease in audit and consulting fees related to our Sarbanes-Oxley compliance work. We expect our accounting and consulting fees, and general and administrative expenses, to remain stable as we enter into the third year of our Sarbanes-Oxley compliance program.

      Sales and Marketing Expenses. Sales and marketing expenses increased $985,000 to $2.7 million for the three months ended June 30, 2006 from $1.8 million for the three months ended June 30, 2005. The most significant components of sales and marketing are payroll, sales commissions and promotional

21

activities. Payroll and sales commissions increased by $760,000 mainly due an increase in staff levels, which is consistent with our increase in sales bookings. Our sales and marketing staff levels increased to 50 employees as of June 30, 2006 from 30 as of June 30, 2005. We anticipate that our sales and marketing expenses will range between $2.0 million and $3.0 million, on a quarterly basis, depending on the variable nature of sales commissions and the timing of our marketing expenses.

      Depreciation and Amortization Expenses. Depreciation and amortization expense increased $835,000 to $2.7 million for the three months ended June 30, 2006 from $1.9 million for the three months ended June 30, 2005. The increase is the result of an increase in capital expenditures necessary to support our business growth.

      Change in Fair Value of Derivatives Embedded within Convertible Debt. Our 9% senior convertible notes due June 15, 2009 contain embedded derivatives that require separate valuation from the senior convertible notes. We recognize these embedded derivatives as a liability in our balance sheet, measure them at their estimated fair value and recognize changes in the estimated fair value of the derivative instruments in earnings. We estimated that the embedded derivatives had a March 31, 2006 estimated fair value of $25.0 million and a June 30, 2006 estimated fair value of $9.4 million. The embedded derivatives derive their value primarily based on changes in the price and volatility of our common stock. The estimated fair value of the embedded derivatives increases as the price of our common stock increases and decreases as the price of our common stock decreases. The closing price of our common stock decreased to $3.60 on June 30, 2006 from $8.50 as of March 31, 2006. As a result, during the three months ended June 30, 2006, we recognized a gain of $15.5 million from the change in estimated fair value of the embedded derivatives. For the three months ended June 30, 2005, we recognized a loss of $464,000 due to the change in value of our embedded derivatives.

      Over the life of the senior convertible notes, given the historical volatility of our common stock, changes in the estimated fair value of the embedded derivatives are expected to have a material effect on our results of operations. See “Quantitative and Qualitative Disclosures about Market Risk.” Furthermore, we have estimated the fair value of these embedded derivatives using a theoretical model based on the historical volatility of our common stock of (90% as of June 30, 2006) over the past twelve months. If a market develops for our senior convertible notes or we are able to find comparable market data, we may be able to use future market data to adjust our historical volatility by other factors such as trading volume. As a result, the estimated fair value of these embedded derivatives could be significantly different. Any such adjustment would be made prospectively.

      Interest Expense. Interest expense increased $600,000 to $6.6 million for the three months ended June 30, 2006 from $6.0 million for the three months ended June 30, 2005. This increase is due to the amortization discount on the Senior Convertible Notes. We record amortization using the effective interest method and accordingly the interest expense associated with these Senior Notes will increase as the carrying value increases.

      Interest Income. Interest income decreased $157,000 to $303,000 for the three months ended June 30, 2006 from approximately $460,000 for the three months ended June 30, 2005. This decrease was due to a decrease in cash balances.

      Net Income (Loss). Net income (loss) for our reportable segments was as follows:

	For the Three Months Ended
	June 30,
	2006		2005
Data center operations	$	9,528,879	$	(10,140,168	)
Real estate services		—		8,896
	$	9,528,879	$	(10,131,272	)

      Excluding the change in the estimated fair value of the embedded derivative, the net loss from data center operations decreased $3.6 million to $6.0 million for the three months ended June 30, 2006 when

22

compared to $9.6 million of the three months ended June 30, 2005. The decrease in our net loss is primarily due to an increase in our revenues of approximately $10.7 million, offset by an increase in our operating expenses of approximately $6.3 million.

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

Liquidity and Capital Resources

Liquidity

      Although we have incurred losses from operations in each quarter and annual period since our merger with AmTec, Inc., we generated approximately $326,000 in income from operations for the three months ended June 30, 2006. Cash used in operations for the year ended March 31, 2006 and the three months ended June 30, 2006 was approximately $11.9 million and $6.3 million, respectively. As of June 30, 2006, our total liabilities were approximately $175.9 million.

      As of June 30, 2006, our principal source of liquidity was our $8.3 million in cash and cash equivalents and our $18.2 million in accounts receivable. Although cash decreased approximately $12.1 million from March 31, 2006 to June 30, 2006, our working capital only decreased approximately $2.3 million during the same period, mainly due to an increase in accounts receivable. This increase in accounts receivable is attributed to the timing of payments from a few customers, including the federal government. We also have $1.8 million in restricted cash to be used to fund customer related capital improvements made to the NAP of the Americas building in Miami. We anticipate that this cash, coupled with our anticipated cash flows generated from operations, including anticipated collections on our current receivable balances, will be sufficient to meet our capital expenditures, working capital, debt service and corporate overhead requirements in connection with our currently identified business objectives. Our projected revenues and cash flows depend on several factors, some of which are beyond our control, including the rate at which we provide services, the timing of exercise of expansion options by customers under existing contracts, the rate at which new services are sold to the government sector and the commercial sector, the ability to retain the customer base, the willingness and timing of potential customers in outsourcing the housing and management of their technology infrastructure to us, the reliability and cost-effectiveness of our services and our ability to market our services.

Indebtedness

      On December 31, 2004, we purchased the remaining 99.16% equity interests of TECOTA that were not owned by us and TECOTA became our wholly-owned subsidiary. TECOTA owns the building in which the NAP of the Americas is housed. We refer to this building as the NAP of the Americas building. In connection with this purchase, we paid approximately $40.0 million for the equity interests and repaid an approximately $35.0 million mortgage to which the NAP of the Americas building was subject. We financed the purchase and repayment of the mortgage from two sources. We obtained a $49.0 million first mortgage loan from Citigroup Global Markets Realty Corp., $4.0 million of the proceeds of which are restricted and can only be used to fund customer related improvements made to the NAP of the Americas in Miami. Simultaneously, we issued senior secured notes in an aggregate principal amount equal to $30.0 million and sold 306,044 shares of our common stock valued at $2.0 million to the Falcon Investors. The $49.0 million loan by Citigroup is collateralized by a first mortgage on the NAP of the Americas building and a security interest in all then existing building improvements that we have made to the building, certain of our deposit accounts and any cash flows generated from customers by virtue of their activity at the NAP of the Americas building. The mortgage loan matures in February 2009 and bears interest at a rate per annum equal to the greater of (a) 6.75% or (b) LIBOR plus 4.75% (5.37% as of June 30, 2006). In addition, if an event of default occurs under the mortgage loan agreement, we must pay interest at a default rate equal to 5% per annum in excess of the rate otherwise applicable under the mortgage loan agreement on any amount we owe to the lenders but have not paid when due until that

23

amount is paid in full. The terms of the mortgage loan agreement require us to pay annual rent of $6.9 million to TECOTA. The senior secured notes are collateralized by substantially all of our assets other than the NAP of the Americas building, including the equity interests in our subsidiaries, bear cash interest at 9.875% per annum and “payment in kind” interest at 3.625% per annum, and mature in March 2009. In the event we achieve specified leverage ratios, the interest rate applicable to the senior secured notes will be reduced to 12.5% but will be payable in cash only. Overdue payments under the senior secured notes bear interest at a default rate equal to 2% per annum in excess of the rate of interest then borne by the senior secured notes. Our obligations under the senior secured notes are guaranteed by substantially all of our subsidiaries.

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

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

•  incur more debt;

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

•  make acquisitions or investments;

•  enter into transactions with affiliates;

•  merge or consolidate with others;

•  dispose of assets or use asset sale proceeds;

•  create liens on our assets; and

•  extend credit.

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

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

      If there is a change in control, the holders of the 9% senior convertible notes have the right to require us to repurchase their notes at a price equal to 100% of the principal amount, plus accrued and unpaid interest. If a change of control occurs and at least 50% of the consideration for our common stock consists of cash, the holders of the 9% senior convertible notes may elect to receive the greater of the repurchase price described above or the total redemption amount. The total redemption amount will be equal to the product of (x) the average closing prices of our common stock for the five trading days prior to the

24

announcement of the change of control and (y) the quotient of $1,000 divided by the applicable conversion price of the 9% senior convertible notes, plus a make-whole premium of $90 per $1,000 of principal if the change of control takes place before December 15, 2006, reducing to $45 per $1,000 of principal if the change of control takes place between June 16, 2008 and December 15, 2008. If we issue a cash dividend on our common stock, we will pay contingent interest to the holders equal to the product of the per share cash dividend and the number of shares of common stock issuable upon conversion of each holder’s note.

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

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

Sources and Uses of Cash

      Cash used in operations for the three months ended June 30, 2006 and 2005 was approximately $6.3 million and $9.9 million, respectively. We used cash to primarily fund our operations, including cash interest payments on our debt.

      Cash used in investing activities for the three months ended June 30, 2006 was $5.5 million compared to cash used in investing activities of $1.9 million for the quarter ended June 30, 2005, an increase of $3.6 million. This decrease is primarily due to the payments made in connection with the purchase of property and equipment for the three months ended June 30, 2006.

      Cash used in financing activities for the three months ended June 30, 2006 was $302,000 compared to cash provided by financing activities of $113,000 for the quarter ended June 30, 2005, a decrease of $189,000.

Guarantees and Commitments

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

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

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

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

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

•  Terremark repurchases any of its common stock.

25

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

•  Any fraud, misappropriation or misapplication of funds;

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

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

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

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

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

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

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

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

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

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

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

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

      The following table represents the minimum future operating and capital lease payments (principal and interest) for these commitments, as well as the combined aggregate maturities and interest for the following obligations as of June 30, 2006:

	Capital Lease		Operating		Convertible		Mortgage
	Obligations		Leases		Debt		Payable		Notes Payable		Total
2007 (nine months)	$	556,685	$	3,628,696	$	3,881,250	$	3,164,884	$	4,123,739	$	15,355,254
2008		565,504		4,729,541		7,762,500		4,219,846		4,123,739		21,401,130
2009		229,733		3,750,627		7,762,500		49,414,809		34,669,953		95,827,622
2010		114,728		3,727,464		90,131,250		—		—		93,973,442
2011		110,082		3,800,232		—		—		—		3,910,314
Thereafter		15,101		33,309,488		—		—		—		33,324,589
	$	1,591,833	$	52,946,048	$	109,537,500	$	56,799,539	$	42,917,431	$	263,792,351

Recent Accounting Standards

      In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, and an Amendment of APB Opinion No. 29”. SFAS No. 153 addresses the measurement of exchanges of nonmonetary assets. It eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets contained in APB Opinion No. 29 and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of an entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for fiscal periods beginning after June 15, 2005. As the provisions of SFAS No. 153 are to be applied prospectively, the adoption of SFAS No. 153 will not have

26

an impact on our historical financial statements; however, we will assess the impact of the adoption of this pronouncement on any future nonmonetary transactions that we enter into, if any.

      In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Instruments,” an amendment of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities — a replacement of FASB Statement No. 125” (“SFAS No. 155”). SFAS No. 155 improves the financial reporting of certain hybrid financial instruments by requiring more consistent accounting that eliminates exemptions and provides a means to simplify the accounting for such instruments. Specifically, SFAS No. 155 allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. SFAS No. 155 also (i) clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133; (ii) establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; (iii) clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives and (iv) amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. We are currently in the process of evaluating the impact that the adoption of SFAS No. 155 will have on our financial position, results of operations and cash flows.

      In April 2006, the FASB issued FASB Staff Position No. FIN 46(R)-6 (“FSP FIN 46(R)-6”), which addresses how a reporting enterprise should determine the variability to be considered in applying FASB Interpretation No. 46 “Consolidation of Variable Interest Rate Entities”, as amended (“FIN No. 46(R)”). The variability that is considered in applying FIN 46(R) affects the determination of (a) whether the entity is a variable interest entity, (b) which interests are variable interests in the entity and (c) which party, if any, is the primary beneficiary of the variable interest entity. That variability will affect any calculation of expected losses and expected residual returns if such a calculation is necessary. FSP FIN 46(R)-6 is effective beginning the first day of the first reporting period beginning after June 15, 2006. We are currently in the process of evaluating the impact that the adoption of FSP FIN 46(R)-6 will have on our financial position, results of operations and cash flows.

      In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions. This interpretation requires the Company to recognize the impact of a tax position if that position is more likely than not to be sustained based on the technical merits of the position. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company is currently evaluating the impact of adopting FIN 48 on its financial statements.

Other Factors Affecting Operating Results

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

      We have incurred net losses from operations in each annual period since our April 28, 2000 merger with AmTec, Inc. We incurred net losses of $37.1 million, $9.9 million and $22.5 million for the years ended March 31, 2006, 2005 and 2004, respectively. As of June 30, 2006, our accumulated deficit was $274.3 million. We cannot guarantee that we will become profitable. Even if we achieve profitability, given the evolving nature of the industry in which we operate, we may not be able to sustain or increase profitability on a quarterly or annual basis, and our failure to do so would adversely affect our business, including our ability to raise additional funds and gain new customers.

27

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

      Our products and services must be able to differentiate themselves from existing providers of space and services for telecommunications companies, web hosting companies and other colocation providers. In addition to competing with neutral colocation providers, we must compete with traditional colocation providers, including local phone companies, long distance phone companies, Internet service providers and web hosting facilities. Likewise, with respect to our other products and services, including managed services, bandwidth services and security services, we must compete with more established providers of similar services. Most of these companies have longer operating histories and significantly greater financial, technical, marketing and other resources than us.

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

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

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

      During the year ended March 31, 2006 and the quarter ended June 30, 2006, revenues under contracts with agencies of the U.S. federal government constituted 22% and 23%, respectively, of our data center revenues. Generally, U.S. government contracts are also subject to oversight audits by government representatives, to profit and cost controls and limitations, and to provisions permitting modification or termination, in whole or in part, without prior notice, at the government’s convenience. In some cases, government contracts are subject to the uncertainties surrounding congressional appropriations or agency funding. Government contracts are subject to specific procurement regulations. Failure to comply with these regulations and requirements could lead to suspension or debarment from future government contracting for a period of time, which could limit our growth prospects and adversely affect our business, results of operations and financial condition. Government contracts typically have an initial term of one year. Renewal periods are exercisable at the discretion of the U.S. government. We may not be successful

28

in winning contract awards or renewals in the future. Our failure to renew or replace U.S. government contracts when they expire could have a material adverse effect on our business, financial condition, or results of operations.

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

      During the quarter ended June 30, 2006, we derived approximately 23% of our data center revenues from the agencies of the federal government. During the quarter ended June 30, 2005, we derived approximately 26% and 13% of our data center revenues from two customers. Because we derive a large percentage of our revenues from a few major customers, our revenues could significantly decline if we lose one or more of these customers or if the amount of business we obtain from them is reduced.

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

      We are a highly leveraged company. As of June 30, 2006, our total liabilities were approximately $175.9 million and our total stockholders’ equity was $23.6 million. Our mortgage loan and our senior secured notes are, collectively, collateralized by substantially all of our assets. In addition, in some circumstances, interest obligations payable with respect to our senior secured notes may be paid in kind by adding such interest payments to the principal amount owed under the senior secured notes increasing further our debt exposure. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

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

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

•  conditions in the Internet infrastructure market;

•  credit availability from banks or other lenders;

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

•  the success of our facilities.

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

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

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

•  incur more debt;

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

•  make acquisitions or investments;

•  enter into transactions with affiliates;

•  merge or consolidate with others;

•  dispose of assets or use asset sale proceeds;

29

•  create liens on our assets; and

•  extend credit.

      Our failure to comply with the obligations in our mortgage loan with Citigroup and our senior secured notes could result in an event of default under the mortgage loan or the senior secured notes, which, if not cured or waived, could permit acceleration of the indebtedness or our other indebtedness, or result in the same consequences as a default in payment. If the acceleration of the maturity of our debt occurs, we may not be able to repay our debt or borrow sufficient funds to refinance it on terms that are acceptable to us, which could adversely impact our business, results of operations and financial condition.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

30

penny stock regulations it is likely that the price of our common stock would decline and our stockholders would find it difficult to sell their shares.

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

      We are highly dependent on the skills, experience and services of key personnel. The loss of such key personnel could have a material adverse effect on our business, operating results or financial condition. We do not maintain keyman life insurance with respect to these key individuals. Our potential growth and expansion are expected to place increased demands on our management skills and resources. Therefore, our success also depends upon our ability to recruit, hire, train and retain additional skilled and experienced management personnel. Employment and retention of qualified personnel is important due to the competitive nature of our industry. Our inability to hire new personnel with the requisite skills could impair our ability to manage and operate our business effectively.

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

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

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

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

•  the ability to identify and consummate complementary acquisition candidates;

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

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

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

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

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

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

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

31

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

•  loss of key employees of the acquired companies.

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

We may encounter difficulties implementing our expansion plan.

      We expect that we may encounter challenges and difficulties in implementing our expansion plan to establish new Internet exchange facilities in domestic locations in which we believe there is significant demand for our services. These challenges and difficulties relate to our ability to:

•  identify and take advantage of locations in which we believe there is sufficient demand for our services;

•  generate sufficient cash flow from operations or through additional debt or equity financings to support these expansion plans;

•  hire, train and retain sufficient additional financial reporting management, operational and technical employees; and

•  install and implement new financial and other systems, procedures and controls to support this expansion plan with minimal delays.

      If we encounter greater than anticipated difficulties in implementing our expansion plan, it may be necessary to take additional actions, which could divert management’s attention and strain our operational and financial resources. We may not successfully address any or all of these challenges, and our failure to do so would adversely affect our business plan and results of operations, our ability to raise additional capital and our ability to achieve enhanced profitability.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

      We have not entered into any financial instruments for trading purposes. However, the estimated fair value of the derivatives embedded within our 9% senior convertible notes creates a market risk exposure resulting from changes in the price of our common stock. These embedded derivatives derive their value primarily based on the price and volatility of our common stock; however, we do not expect significant changes in the near term in the one-year historical volatility of our common stock used to calculate the estimated fair value of the embedded derivatives. Other factors being equal, as of June 30, 2006, the table below provides information about the estimated fair value of the derivatives embedded within our senior convertible notes and the effect that changes in the price of our common stock are expected to have on the estimated fair value of the embedded derivatives:

	Estimated Fair Value of
Price per Share of Common Stock	Embedded Derivatives
$2.00	$	3,880,560
$4.00	$	10,870,950
$6.00	$	18,789,563
$8.00	$	26,482,200
$10.00	$	34,145,513

      Our exposure to market risk resulting from changes in interest rates results from the variable rate of our mortgage loan, as an increase in interest rates would result in lower earnings and increased cash outflows. The interest rate on our mortgage loan is payable at variable rates indexed to LIBOR. The effect of each 1% increase in the LIBOR rate (5.37% at June 30, 2006) would result in an annual increase in interest expense of approximately $496,000. Based on the U.S. yield curve as of June 30, 2006 and other available information, we project interest expense on our variable rate debt to increase approximately

32

$298,000, $276,000, $262,000 and $249,000 for the years ended June 30, 2007, 2008, 2009 and 2010, respectively.

      Our 9% senior convertible notes and our senior secured notes have fixed interest rates and, accordingly, are not exposed to market risk resulting from changes in interest rates. However, the fair market value of our long-term fixed interest rate debt is subject to interest rate risk. Generally, the fair market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. These interest rate changes may affect the fair market value of the fixed interest rate debt but do not impact our earnings or cash flows.

      Our carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are reasonable approximations of their fair value.

      As noted above, the estimated fair value of the embedded derivatives increases as the price of our common stock increases. These changes in estimated fair value will affect our results of operations but will not impact our cash flows.

      To date, approximately 85% of our recognized revenue has been denominated in U.S. dollars, generated mostly from customers in the U.S., and our exposure to foreign currency exchange rate fluctuations has been minimal. In the future, a larger portion of our revenues may be derived from operations outside of the U.S. and may be denominated in foreign currency. As a result, future operating results or cash flows could be impacted due to currency fluctuations relative to the U.S. dollar.

      Furthermore, to the extent we engage in international sales that are denominated in U.S. dollars, an increase in the value of the U.S. dollar relative to foreign currencies could make our services less competitive in the international markets. Although we will continue to monitor our exposure to currency fluctuations, and when appropriate, may use financial hedging techniques in the future to minimize the effect of these fluctuations, we cannot conclude that exchange rate fluctuations will not adversely affect our financial results in the future.

      Some of our operating costs are subject to price fluctuations caused by the volatility of underlying commodity prices. The commodity most likely to have an impact on our results of operations in the event of significant price change is electricity. We are closely monitoring the cost of electricity. To the extent that electricity costs rise, we have the ability to pass these additional power costs onto our customers that utilize this power. We do not employ forward contracts or other financial instruments to hedge commodity price risk.

Item 4. Controls and Procedures.

     (a) Evaluation of Disclosure Controls and Procedures

      Our principal executive and financial officers have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) of the Exchange Act of 1934 (the “Exchange Act”) to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information we are required to disclose in such reports is accumulated and communicated to management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, our principal executive and financial officers concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

     (b) Internal Control Over Financial Reporting

      There has been no change in our internal control over financial reporting during the quarter ended June 30, 2006 that has materially affected, or is reasonably likely to affect, our internal control over financial reporting.

33 EX-31.1 2 g02396a1exv31w1.htm SEC. 302 CHIEF EXECUTIVE OFFICER CERTIFICATION

Exhibit 31.1

CERTIFICATION

I, Manuel D. Medina, certify that:

      1. I have reviewed this quarterly report on Form 10-Q of Terremark Worldwide, Inc. (the “Registrant”);

      2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

      3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

      4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and we have:

      (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

      (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

      (c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

      (d) disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

      5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent function):

      (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

      (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

/s/ MANUEL D. MEDINA

Manuel D. Medina

Chairman of the Board

President and Chief Executive Officer

(Principal Executive Officer)

Date: August 10, 2006 EX-31.2 3 g02396a1exv31w2.htm SEC. 302 CHIEF FINANCIAL OFFICER CERTIFICATION

Exhibit 31.2

CERTIFICATION

I, José A. Segrera, certify that:

      1. I have reviewed this quarterly report on Form 10-Q of Terremark Worldwide, Inc. (the “Registrant”);

      2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

      3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

      4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and we have:

      (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

      (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

      (c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

      (d) disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

      5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent function):

      (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

      (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

/s/ JOSÉ A. SEGRERA

José A. Segrera

Executive Vice President and

Chief Financial Officer

(Principal Accounting Officer)

Date: August 10, 2006 EX-32.1 4 g02396a1exv32w1.htm SEC. 906 CHIEF EXECUTIVE OFFICER CERTIFICATION

Exhibit 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Manuel D. Medina, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

      (1) The accompanying quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2006 fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

      (2) The information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Terremark Worldwide, Inc.

/s/ MANUEL D. MEDINA

Manuel D. Medina

Chairman of the Board

President and Chief Executive Officer

(Chief Executive Officer)

Date: August 10, 2006 EX-32.2 5 g02396a1exv32w2.htm SEC. 906 CHIEF FINANCIAL OFFICER CERTIFICATION

Exhibit 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, José A. Segrera, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

      (1) The accompanying quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2006 fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

      (2) The information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Terremark Worldwide, Inc.

/s/ JOSÉ A. SEGRERA

José A. Segrera

Executive Vice President and

Chief Financial Officer

(Principal Accounting Officer)

Dated: August 10, 2006 -----END PRIVACY-ENHANCED MESSAGE-----

EX-31.1

Sec. 302 Chief Executive Officer Certification

EX-31.2

Sec. 302 Chief Financial Officer Certification

EX-32.1

Sec. 906 Chief Executive Officer Certification

EX-32.2

Sec. 906 Chief Financial Officer Certification