10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form10-K

þ	ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended March 31, 2006
o	TRANSITION REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-22520

Terremark Worldwide, Inc.

(Exact Name of Registrant as Specified in Its Charter)

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

2601 S. Bayshore Drive, Miami, Florida 33133

(Address of Principal Executive Offices, Including Zip Code)

Registrant’s telephone number, including area code:

(305) 856-3200

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

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

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

NONE

      Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes o          No þ

      Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act.     Yes o          No þ

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (17 CFR 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

      Indicate by check mark whether the registrant is 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 (Check one):

Large Accelerated Filer o          Accelerated Filer þ          Non-Accelerated Filer o

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

      The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant on June 13, 2006 was approximately $166,092,621, based on the closing market price of the registrant’s common stock ($6.11 as reported by the American Stock Exchange on such date). For purposes of the foregoing computation, all executive officers, directors and five percent beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed to be an admission that such executive officers, directors or five percent beneficial owners are, in fact, affiliates of the registrant.

      The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of May 31, 2006 was 44,570,458.

TABLE OF CONTENTS

			Page
Part I				2
	Item 1.	Business		2
	Item 1A.	Risk Factors		9
	Item 1B.	Unresolved Staff Comments		15
	Item 2.	Properties		15
	Item 3.	Legal Proceedings		15
	Item 4.	Submission of Matters to a Vote of Security Holders		16
Part II				16
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		16
	Item 6.	Selected Consolidated Financial Data		18
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		36
	Item 8.	Financial Statements and Supplementary Data		37
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		37
	Item 9A.	Controls and Procedures		38
	Item 9B.	Other Information		40
Part III				40
	Item 10.	Directors and Executive Officers of the Registrant		40
	Item 11.	Executive Compensation		43
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		49
	Item 13.	Certain Relationships and Related Transactions		52
	Item 14.	Principal Accountant Fees and Services		53
Part IV				56
	Item 15.	Exhibits and Financial Statements		56
Signatures				59
Agreement
Subsidiaries of the Company
Consent of PricewaterhouseCoopers LLP
Consent of KPMG LLP
Section 302 Chief Executive Officer Certification
Section 302 Chief Financial Officer Certification
Section 906 Chief Executive Officer Certification
Section 906 Chief Financial Officer Certification

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PART I

ITEM 1. BUSINESS.

      The words “Terremark”, “we”, “our”, “ours”, and “us” refer to Terremark Worldwide, Inc. All statements in this discussion that are not historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding Terremark’s “expectations”, “beliefs”, “hopes”, “intentions”, “strategies” or the like. Such statements are based on management’s current expectations and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Terremark cautions investors that actual results or business condition may differ materially from those projected or suggested in such forward-looking statements as a result of various factors, including, but not limited to, the risk factors discussed in this Annual Report on Form 10-K. Terremark expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Terremark’s expectations with regard thereto or any change in events, conditions, or circumstances on which any such statements are based.

Recent Events

      We have announced the implementation of a multi-pronged strategy to aggressively pursue growth opportunities to address the significant demand that we anticipate in the marketplace from existing and potential customers. In order to continue addressing the demands and requirements of our customers, we will seek to expand our existing portfolio of services infrastructure and data center operations in existing markets and infrastructure in additional strategic markets. We have engaged Credit Suisse Securities (USA) LLC to assist us in evaluating alternatives to pursue such growth. The Audit Committee of our Board of Directors, which is comprised solely of independent directors, will assist management in reviewing and evaluating such recommendations.

Our Business

      We operate Internet exchange points from which we provide colocation, interconnection and managed services to 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 several 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 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.

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      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.

      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, the Diplomatic Telecommunications Service — Program Office (DTS-PO, a division of the U.S. Department of State), 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 Google, Internap, NTT/ Verio, VeriSign, Bacardi USA, Corporación Andina de Fomento, Florida International University, Intrado, Jackson Memorial Hospital of Miami and Steiner Leisure.

      Our principal executive office is located at 2601 South Bayshore Drive, Miami, Florida 33133. Our telephone number is (305) 856-3200.

Industry

      The Internet is a collection of many independent networks interconnected with each other to form a network of networks. Information that is to be transported over the Internet is divided into discreet identical sized packets that are transmitted over the primary Internet networks, known as backbones, and then reassembled at their destination where they are presented to the end user in the same form as the original information. However, not all Internet backbones reach all locations on the Internet. Therefore, users on different networks need to communicate with each other and transmit packets to each other through interconnection between these networks. To accommodate the fast growth of traffic over the Internet, an organized approach for network interconnection was needed. The exchange of traffic between these networks without payment became known as “peering”. When a fee is paid, it is referred to as “transit.” The points and places where these networks exchange traffic, or peer, with each other are known as Internet Exchanges, or IXs.

      Internet Exchanges, or IXs, are locations where two or more networks meet to interconnect and exchange Internet and data traffic (data, voice, images, video and all forms of digital telecommunications), much like air carriers meet at airports to exchange passengers and cargo. Instead of airlines and transportation companies, however, participation in IXs comes from telecommunications carriers, Internet service providers and large telecommunications and Internet users. Tier-1 IXs are locations where the primary Internet networks meet to access, exchange and distribute Internet traffic and, following the airport analogy, operate much like large, international airport passenger and cargo transportation terminals or “hubs.”

      Since the beginning of the Internet, major traffic aggregation and exchange points have developed around the world. The first four Tier-1 IXs were built in the United States in the early 1990’s to serve the northern part of the country, from East Coast to West Coast, and are located in New York, Washington D.C., Chicago and San Francisco. These IXs were built with sponsorship from the National Science Foundation in order to promote Internet development and used the existing infrastructures of telecommunication companies, to which ownership of the IXs was eventually transferred. These four Tier-1 IXs offered only connectivity services. Since that time, privately owned IXs have been developed, including the NAP of the Americas.

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Value Proposition

      The combination of connectivity, neutrality and the quality of our facilities allows us to provide the following value proposition to our customers:

•  State-of-the-art facilities. Our facilities are constructed in order to meet high standards of security and provide 24x7 monitoring, on-site technical support and service level agreements that guarantee 100% uptime for power and cooling capabilities. Additionally, our Miami facility is designed to withstand a category 5 hurricane and houses equipment only above the first floor in order to prevent flood damage.

•  Carrier-neutrality. Carriers and other customers are willing to locate their equipment within our facility and use our professional managed services because we neither discriminate against nor give preference to any individual or group of customers.

•  Connectivity. Our customers can access any of the more than 90 network providers present at our facilities.

•  “Zero-Mile” Access. Because our facilities provide carrier-grade colocation space directly adjacent to the point at which the traffic is exchanged, there is effectively “zero” distance between the peering point and customers’ equipment, which reduces costs and points of failure and increases efficiency.

•  Outsourcing of Services. Because of our staff’s expertise, our customers find it more cost effective to contract us to design, deploy, operate, monitor and manage their equipment and networks at our facilities than to hire dedicated staff to perform those functions.

•  Lower Costs, Increased Efficiency and Quality of Service. The combination of these attributes helps our customers reduce their total costs by eliminating local loop charges to connect their facility to the peering point, backhaul charges to and from connecting points, and the cost of redundancy to mitigate risks associated with increased points of failure along these routes.

Our Strategy

      Key components of our strategy include the following:

      Deepen our relationships with existing customers. As of March 31, 2006, we have 488 customers worldwide and 319 customers who have entered into agreements with us and are based in our NAP of the Americas facility, including key contracts with agencies of the U.S. federal government and major enterprises. Due to the difficulties inherent in obtaining the qualifications and certifications required to conduct business with the U.S. federal government, we believe there are significant barriers to entry for competition which, coupled with our proven ability to secure government business through publicly awarded and sole-sourced contracts, increases the likelihood that we will be awarded additional contracts in the future. We also seek to enhance our relationships with our existing enterprise customers by licensing additional colocation space, interconnections and related professional and managed services both directly and indirectly through partnerships and joint-ventures.

      Penetrate new sectors. Since 2000, we have built a strong customer base in the government, telecommunications carrier and information technology service provider sectors. In order to continue growing our revenues, we are targeting additional customer sectors, such as financial services, healthcare, technology and media and communications to which we can provide colocation, connectivity and exchange services as well as professional and managed services. We believe that our opportunity to penetrate these sectors is particularly strong due to specified information technology related requirements of new laws such as the Health Insurance Portability and Accountability Act, the USA Patriot Act and the Sarbanes-Oxley Act of 2002.

      Establish insertion points for network-based services. The combination of our core infrastructure, comprised of state-of-the-art facilities with substantial fiber connectivity, our technology and our customer base provides us with the ability to directly connect multiple network service providers to our platform giving them access to a wide array of managed services. We define these combinations as Services Insertion Point

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locations. Our Services Insertion Point locations allow network service providers to reduce the capital and operational costs for the delivery of their services while maintaining a high degree of quality and availability. They also provide technology manufacturers and service providers with the ability to deploy their technology in a centralized fashion, reducing the capital and operational costs of reaching multiple network service providers, enterprises and end consumers. The ability to access multiple carriers in a single location, or “zero mile connectivity,” available via our Exchange Point Services Platform, allows all our customers to be pre-connected to one another and insert and deliver services in a real time and cost effective manner.

      Maintain and establish a presence in strategic locations. In addition to our NAP of the Americas facility in Miami, Florida, we operate regional IXs in Madrid, Spain; Santa Clara, California; Herndon, Virginia and Sao Paulo, Brazil. In comparison to our facility in Miami, which represents 81% of our global footprint, our regional locations are smaller in size. These regional IXs are centrally managed from our Miami facility and require less capital to establish and manage than our primary facility. Our regional IXs enable us to offer enhanced services to existing customers by making colocation space, exchange point services and managed services available in more immediate proximity to their locations around the world. In response to the needs of our customers, we may establish and maintain Internet-exchange points in additional locations deemed to be strategic.

Customers

      As of March 31, 2006, we had 488 customers in total and 319 customers who have entered into agreements with us and are based in our NAP of the Americas facility.

      Selected customers include:

		Content and
Government and Federal Information	Carriers and Network	Service
Technology Service Providers	Providers	Providers	Enterprises
Blackbird Technologies	AT&T	Google	Bacardi USA
City of Coral Gables, Florida	Global Crossing	Internap	Citrix
DTS-PO*	Latin America	NTT/Verio	Corporación Andina de Fomento
Miami-Dade County, Florida	Nautilus**	VeriSign	Florida International University
SRA International	Progress Telecom		Intrado
United States Southern Command	Sprint Communications		Jackson Memorial Hospital
	T-Systems***		Steiner Leisure
			Facebook
			Shutterfly
			IDT

     *  Diplomatic Telecommunications Service — Program Office, a division of the U.S. Department of State.

  **  A business unit of Telecom Italia.

***  A business unit of Deutsche Telecom.

      Customers typically sign renewable contracts of one or more years in length, with an average term of 18 months. During the year ended March 31, 2006, two of our customers, agencies of the U.S. federal government and Blackbird Technologies, constituted 19% and 14%, respectively, of our data center revenues.

Products and Services

      We provide the following types of products and services: Colocation, Exchange Point, and Managed and Professional Services.

Colocation Services:

      Our facilities provide the physical environment necessary to keep a customer’s Internet and telecommunications equipment up and running 24 hours a day, seven days a week. Our facilities are custom designed to

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exceed industry standards for electrical and environmental systems. In addition, we offer a wide range of physical security features, including biometric scanners, man traps, smoke detection, fire suppression systems, motion sensors, secured access, video camera surveillance and security breach alarms. High levels of reliability are achieved through a number of redundant subsystems including power and fiber connections from multiple sources. Depending on customer requirements, open racks, cabinets, or customized caged floor spaces are available to our customers for the housing of their mission critical equipment.

Exchange Point Service:

      Our Exchange Point Service Platform is designed to allow our customers to connect their networks and equipment with that of others in a flexible and cost-effective manner. Doing so allows them to reduce costs while enhancing the reliability and performance associated with the exchange of Internet and telecommunications traffic. Our Exchange Point Service Platform consists of a number of high speed optical/digital switches and routers, combined to create a total aggregate switching capacity that can grow to over 4.0 terabits per second. Our customers connect to the platform at speeds and protocols best suited to meet their particular needs. In addition to facilitating peering and transit agreements among our customers, our Exchange Point Platform allows our customers and partners to insert their managed services into the carrier networks connected to the platform. We currently offer the following Exchange Point Services:

•  Ethernet Exchange Service

      Our Exchange Point Service Platform features a redundant and expandable Ethernet switch. This fully distributed switch promotes predictable application performance, increased network availability and decreased costs generated by the peering and transit agreements between and among our customers.

•  Optical Exchange Service

      Our customers may choose to establish peering and transit relationships via private cross-connects on our advanced optical/digital switch.

•  Muxing and De-muxing Services

      The transmission of multiple data signals over a single communication circuit is known as multiplexing or muxing. The separation of two or more signals previously combined by compatible multiplexing equipment is known as de-muxing. Our Muxing and De-muxing service allows customers to terminate any interface on the optical switch, regardless of their peering or transit agreements or cross-connect needs. This provides flexibility and growth in their network design.

•  International Gateway Services

      Our Exchange Point Service Platform supports both foreign and domestic communications protocols which allow service providers the ability to transparently cross-connect data signals from around the globe, regardless of local country format.

Managed and Professional Services

      Our Managed Services are designed to support the core needs of network based systems, supplying performance monitoring, systems management and mission critical Internet protocol infrastructure. Our Professional Services focus on producing faster network response times, reducing implementation timelines, assisting customers in the provisioning process and with troubleshooting and maintenance. We currently offer the following Managed and Professional Services:

•  Network Operations Center Outsourcing

      Our Network Operations Center, or NOC, service is a customer-outsourced service providing continuous 24-hour support, monitoring and managing all elements in our customer’s computing network. The service allows our customers to benefit from our investment in hardware, software tools and expertise, thereby allowing our customers to be supported by a NOC without requiring them to make significant investments in equipment and dedicated staff. The NAP of the Americas is equipped with two

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fully staffed NOCs, one serving our commercial sector customers and the other serving our Federal government sector customers.

•  Managed Router Service

      Our Managed Router Service, or MRS, provides customers with an avenue for outsourcing their router management thereby eliminating the need for in-house router expertise and costly capital and maintenance expenses.

•  Managed Storage Service

      Our Managed Storage Service is a fully managed Storage Area Network, or SAN, service. It provides our customers with an outsourced primary storage solution without the need for additional capital expenditures or in house staff expertise.

•  Managed Optical Extension Service

      Our Managed Optical Extension Service provides all the network management and monitoring benefits of our Exchange Point Service Platform to remote customer locations. This includes remote configuration, alarm and performance management.

•  Advanced Network Monitoring Services

      Advanced Network Monitoring Services provides continuous in-service monitoring of network performance for detecting degradation and its corresponding impact on the delivered quality of service.

•  Professional Outsourced Services

      Our staff can provide full integration activities for all aspects of a customer-outsourced global project. Along with the planning, design and engineering related to the network and the general program management to control the project, we manage vendors, purchase equipment, receive, store and manage inventory, provision, test, ship, track, install, turn up, monitor and manage performance of the network and monitor and maintain equipment and services.

•  Installation Services

      Our installation services specialists provide basic installation of our customers’ equipment. This service reduces our customers’ implementation times, and increases the productivity of our customers’ technical personnel, by avoiding costly downtime due to lack of materials and equipment management and project coordination.

•  Remote Hands and Smart Hands Service

      Remote Hands and Smart Hands assists customers that need to remotely access their equipment to perform simple troubleshooting or minor maintenance tasks on a 24 hours per day, 7 days per week basis that do not require tools or equipment. Smart Hands enhances the Remote Hands service with more complex remote assistance using industry certified engineers for troubleshooting and maintenance. Remote Hands and Smart Hands services are available on demand or per contract.

•  Dedicated Managed Hosting

      We provide managed dedicated, secure hosting services to enterprise customers, e-commerce marketplaces, system integrators, ASP’s and web designers using proprietary technology. Through the development of proprietary technology, we have integrated managed hosting procedures into an automated environment using strict, ITIL-based, procedures and standards. Our solution allows for the rapid integration and deployment of these products in each of our IX’s around the world.

•  Secure Information Services

      Our Secure Information Services Group provides professional and managed information assurance services to our customers. This Group provides a suite of services, including vulnerability

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assessments and penetration tests, secure information systems design and implementation, information security policy and procedure development and review, incident preparation and response. This service offering helps safeguard customer networks and systems located in our facilities and extend to our customers’ premises. We are currently using the market knowledge generated from our professional services engagements to develop a portfolio of Secure Information Managed Services.

Sales and Marketing

      Our sales and marketing objective is to achieve market penetration and brand name recognition by directly and indirectly targeting government and commercial customers.

      Government and Federal Information Technology Service Providers. We sell our products and services to the Federal, state and local governments and various Federal information technology service providers through our direct sales force. A number of our senior executives and sales professionals have Federal government security clearance and experience selling products and services in the public sector. Our relationships with Federal information technology service providers allow us to partner with them to provide our services to an expanded universe of potential public sector customers and have led to increased customers and revenues for us.

      Commercial. Our commercial sales effort is comprised of both direct and indirect sales channels. Our direct sales force is organized by industry sectors such as carriers and network providers, content and service providers and enterprises. We also have sales representatives at our facilities in Miami, Florida, Santa Clara, California, Herndon, Virginia, Sao Paulo, Brazil, and Madrid, Spain. We complement our direct sales operation through utilizing sales channels developed in partnership with certain of our customers and partners. Network service providers and carriers, for example, are given incentives to sell our products and services to their existing clients as a means to increasing the Internet or telecommunications traffic that travels across their own networks already located at our facilities.

      We also have a channel marketing program to promote our products and services to enterprises in various geographic locations. This sales force is supported by a team of trained support engineers who work with our sales executives and their customers to respond to customer questions and design a package of services that best meets the customer’s needs.

      Marketing. Our marketing activities are designed to drive awareness of our products and services, and generate qualified sales opportunities through various direct marketing and event driven campaigns. Our marketing team is responsible for providing our sales force with product brochures, collateral and relevant sales tools to improve their sales effectiveness. Our marketing organization also is responsible for our product strategy and direction based upon primary and secondary market research and the advancement of new technologies. We participate in a variety of Internet, computer and financial industry conferences and place our officers and employees in keynote speaking engagements at these conferences. In addition to these activities, we build recognition through sponsoring or leading industry technical forums and participating in Internet industry standard-setting bodies.

Competition

      Unlike many IXs in the United States, we combine exchange point services (to facilitate peering) with carrier-grade colocation space and managed services in carrier neutral facilities. Consequently, we believe that our facilities are competitively unique and can only be replicated through the expenditures of significant funds over a lengthy period. Additionally, over the past five years we have built strong customer relationships and operational expertise that is not easily duplicated.

      However, our current and potential competition includes:

      Internet data centers operated by established U.S., Brazilian and Spanish communications carriers such as AT&T, Embratel and Telefonica. Unlike the major network providers, which constructed data centers primarily to help sell bandwidth, we have aggregated multiple networks in one location, which we believe provides diversity, competitive prices and high performance. Carrier operated data centers only provide one

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choice of carrier and generally require capacity minimums as part of their pricing structures. Our IXs provide access to a choice of carriers and allow our customers to negotiate the best prices with a number of carriers resulting in better economics and redundancy.

      U.S. IXs such as MAE West and carrier operated IXs. IXs are typically older facilities, and their operators may lack the incentive to upgrade the infrastructure in order to scale with traffic growth. In contrast, we provide secure facilities with 24-hour support and a full range of network and managed services.

      Vertically integrated web site hosting companies, colocation companies and Internet service providers such as Navisite and Savvis. Some managed service providers require that customers purchase their entire network and managed services directly from them. We are a network and service provider aggregator and allow our customers to contract directly with the networks and web-hosting partner best suited for their business.

      Neutral colocation and Internet exchange services companies such as Switch and Data and Equinix. Geographic location tends to be an important factor in determining where networks will meet to create neutral points of connectivity. The location available may not be where potential buyers need capacity or where demand exists. Also, much of the older data center capacity cannot support current blade server technology that requires much more intensive cooling and power density. Our facilities are neutral connectivity points in their respective geographic areas and are designated to accommodate today’s power and cooling demands.

Employees

      As of March 31, 2006, we had 232 full-time employees in the United States, 43 full-time employees in Europe and 13 full-time employees in Brazil. Of these employees, 179 were in data center operations, 52 were in sales and marketing and 57 were in general and administrative.

      Our employees are not represented by a labor union and are not covered by a collective bargaining agreement. We believe that our relations with our employees are good.

Where You Can Find Additional Information

      We file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any documents that we have filed with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our Securities and Exchange Commission filings are also available to the public at the Securities and Exchange Commission’s website at http://www.sec.gov. In addition, we make available free of charge on or through our Internet website, http://www.terremark.com under “Investor Relations”, all of the annual, quarterly and special reports, proxy statements, Section 16 insider holding reports on Form 3, Form 4 and Form 5 and amendments to these reports and other information we file with the SEC. Additionally, our board committee charters and code of ethics are available on our website and in print to any shareholder who requests them. We do not intend for information contained in our website to be part of this Annual Report on Form 10-K.

ITEM 1A.     RISK FACTORS.

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

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

      We have incurred net losses from operations in each quarterly and annual period since our April 28, 2000 merger with AmTec, Inc. We incurred net losses of $37.1 million, $9.9 million and $22.5 million for the years

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ended March 31, 2006, 2005 and 2004, respectively. As of March 31, 2006, our accumulated deficit was $283.8 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.

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.

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

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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 year ended March 31, 2006, we derived approximately 19% and 14% of our data center revenues from two customers. During the year ended March 31, 2005, we derived approximately 42% and 12% of our data center revenues from these same two customers. Because we derive a large percentage of our revenues from a few major customers, our revenues could significantly decline if we lose one or more of these customers or if the amount of business we obtain from them is reduced. See “Business — Customers.”

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

      We are a highly leveraged company. As of March 31, 2006, our total liabilities were $190.9 million and our total stockholders’ equity was $13.8 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;

•  create liens on our assets; and

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

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

      We are highly dependent on the skills, experience and services of key personnel, particularly Manuel D. Medina, our Chairman, President and Chief Executive Officer. The loss of Mr. Medina or other key personnel could have a material adverse effect on our business, operating results or financial condition. Our potential growth and expansion are expected to place increased demands on our management skills and resources. Therefore, our success also depends upon our ability to recruit, hire, train and retain additional skilled and experienced management personnel. Employment and retention of qualified personnel is important due to the competitive nature of our industry. Although we maintain keyman life insurance with respect to Mr. Medina, the amount of coverage may not be sufficient to allow us to obtain a suitable replacement. Our inability to hire new personnel with the requisite skills could impair our ability to manage and operate our business effectively.

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

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

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

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

•  the ability to identify and consummate complementary acquisition candidates;

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

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

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

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

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

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

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

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

•  loss of key employees of the acquired companies.

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      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.

Our common shares are thinly traded and, therefore, relatively illiquid.

      As of March 31, 2006, we had 44,490,352 common shares outstanding (including 865,202 treasury shares). While our common shares trade on the American Stock Exchange, our stock is thinly traded (approximately 0.4% of our stock traded on an average daily basis during the three months ended March 31, 2006) and you may have difficulty in selling your shares quickly. The low trading volume of our common stock is outside of our control, and may not increase in the near future or, even if it does increase in the future, may not be maintained.

Our stock price may be volatile, and you could lose all or part of your investment.

      The market for our equity securities has been extremely volatile (ranging from $2.79 per share to $8.50 per share during the 52-week trading period ending June 14, 2006). Our stock price could suffer in the future as a result of any failure to meet the expectations of public market analysts and investors about our results of operations from quarter to quarter. The following factors could cause the price of our common stock in the public market to fluctuate significantly:

•  actual or anticipated variations in our quarterly results of operations;

•  changes in market valuations of companies in our industry;

•  changes in expectations of future financial performance or changes in estimates of securities analysts;

•  fluctuations in stock market prices and volumes;

•  future issuances of common stock or other securities;

•  the addition or departure of key personnel; and

•  announcements by us or our competitors of acquisitions, investments or strategic alliances.

      Volatility in the market price of our common stock may prevent investors from being able to sell their common stock at or above the price they desire.

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You may not receive dividends on our common stock

      We do not anticipate paying any cash dividends on our common stock in the foreseeable future. In addition, the agreements governing our indebtedness, including the terms of the mortgage loan and the senior secured notes restrict our ability to pay dividends on our common stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

      None.

ITEM 2. PROPERTIES.

      We lease or own properties on which we operate internet exchange facilities from which we may provide our colocation, interconnection and managed services to the government and commercial sectors. The following table shows information on these properties and facilities as of March 31, 2006:

		Lease Expires
		(reflecting	Area
		all Options)	(Square			Annual
Description	Location	(M/Yr)	Feet)			Rent
NAP of the Americas Facility	Miami, Florida	Owned		750,000		N/A
Principal executive offices	Miami, Florida	April 2008		16,900		$542,000(1)
Hewlett Packard data center	Sao Paulo, Brazil	October 2021		3,400		$50,000
Colocation Facility	Santa Clara, California	January 2021		40,000		$1,500,000(2)
Data Center	Herndon, Virginia	February 2015		18,600		$204,000 - $264,000
						(1)(3)
NAP of the Americas- Madrid	Madrid, Spain	December 2015		26,000		800,000 Euros (4)
Data Center	London, England	March 2009		500	(5)	$158,400
Data Center	Frankfurt, Germany	March 2009		500	(5)	$129,732
Data Center	Gent, Belgium	January 2007		—	(6)	$230,400
Data Center	Amsterdam, The Netherlands	January 2007		—	(6)	$400,000
Data Center	Hong Kong, China	July 2008		1,155		$114,000
Data Center	Singapore	July 2007		260		$72,000

(1)	We are also responsible for our share of common area maintenance expenses and real estate taxes.
(2)	We are also responsible for real estate taxes and property and casualty insurance expenses which in the aggregate equal approximately $46,000 annually.
(3)	Annual rent gradually increases with each year of the term and equals $264,000 during the year in which the lease expires.
(4)	$966,000 at March 31, 2006 exchange rate. Annual rent is exclusive of value added taxes. The lessor to the lease is Global Switch Property Madrid, S.I.
(5)	We have an option to lease an additional 500 square feet at the same base rent.
(6)	These leases are for rack space located in data centers. Each lease is for 49 racks.

ITEM 3. LEGAL PROCEEDINGS.

      In the ordinary course of conducting our business, we become involved in various legal actions and other claims. Litigation is subject to many uncertainties and we may be unable to accurately predict the outcome of

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individual litigated matters. Some of these matters possibly may be decided unfavorably to us. Currently, we have some collection related litigation ongoing in the ordinary course of business. It is the opinion of management that the ultimate liability, if any, with respect to these matters will not be material.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

      No matters were submitted to a vote of our stockholders during the three months ended March 31, 2006.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock and Preferred Stock Information

      Our common stock, par value $0.001 per share, is quoted under the symbol “TWW” on the American Stock Exchange. On May 16, 2005, our stockholders approved and we implemented, effective as of the same date for all stockholders of that date, a one-for-ten reverse split of our common stock. All share amounts, prices and per share information in this annual report on Form 10-K have been adjusted to reflect this reverse stock split.

      As of May 31, 2006, under our amended and restated certificate of incorporation, we had the authority to issue:

•  100,000,000 shares of common stock, par value $0.001 per share; and

•  10,000,000 shares of preferred stock, par value $0.001 per share, which are issuable in series on terms to be determined by our board of directors, of which 5,882 shares are designated as series H convertible preferred stock and 600 shares are designated as series I convertible preferred stock.

      As of May 31, 2006:

•  44,570,458 shares of our common stock were outstanding;

•  294 shares of our series H convertible preferred stock were outstanding and held by one holder of record. Each share of series H convertible preferred stock may be converted into 100 shares of our common stock. On June 1, 2006, we received a notice from the holder of all 294 of our series H convertible preferred stock notifying us that the holder had exercised its right to require us to redeem all of these shares. We expect to redeem these shares sometime in the second quarter of our 2007 fiscal year; and

•  323 shares of our series I convertible preferred stock were outstanding. Each share of series I convertible preferred stock may be converted into 3,333 shares of our common stock.

      As of May 31, 2006, there were 370 holders of record and we believe at least 7,300 beneficial owners of our common stock.

      The following table sets forth, for the fiscal quarters indicated, the high and low sales prices for our common stock on the American Stock Exchange. Quotations are based on actual transactions and not bid prices:

	Prices
Fiscal Year 2006 Quarter Ended	High		Low
June 30, 2005	$	8.00	$	5.60
September 30, 2005		7.56		3.97
December 31, 2005		5.04		2.60
March 31, 2006		8.60		4.35

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	Prices
Fiscal Year 2005 Quarter Ended	High		Low
June 30, 2004	$	10.90	$	6.10
September 30, 2004		8.40		6.00
December 31, 2004		7.50		5.50
March 31, 2005		8.40		5.90

Dividend Policy

      Holders of our common stock are entitled to receive dividends or other distributions when and if declared by our board of directors. In addition, our 9% senior convertible notes contain contingent interest provisions which allow the holders of the 9% senior convertible notes to participate in any dividends declared on our common stock. Further, our series H and I preferred stock contain participation rights which entitle the holders to received dividends in the events we declare dividends on our common stock. The right of our board of directors to declare dividends, however, is subject to any rights of the holders of other classes of our capital stock and the availability of sufficient funds under Delaware law to pay dividends. Our mortgage loan with Citigroup and the terms of our senior secured notes limit our ability to pay dividends. We do not anticipate paying cash dividends on our common stock in the foreseeable future.

Recent Sales of Unregistered Securities

      On April 25, 2006, we issued warrants to purchase 12,500 shares of our common stock at an exercise price of $4.80 per share to BVBA pursuant to a prior agreement in connection with BVBA providing investor relations consulting services to us.

      The offer and sale of our securities was exempt from the registration requirements of the Securities Act, as the securities were sold to accredited investors pursuant to Regulation D and to non-United States persons in offshore transactions pursuant to Regulation S.

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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.

      The following selected consolidated annual financial statement data has been derived from our audited Consolidated Financial Statements. The data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and the related notes included elsewhere herein.

		Twelve Months Ended March 31,
		2006			2005			2004			2003			2002
		(Dollars in thousands except per share data)
Results of Operations:
Data center(1)		$	62,529		$	46,818		$	17,034		$	11,033		$	3,216
Real estate services			—			1,330			1,179			3,661			12,656
	Total revenue		62,529			48,148			18,213			14,694			15,872
Data center operations expenses			38,824			36,310			16,413			11,235			11,231
Construction contract expenses			—			809			918			2,968			7,398
Other expenses			60,854			20,888			23,373			41,718			54,615
	Total expenses		99,678			58,007			40,704			55,921			73,244
Net loss			(37,149	)		(9,859	)		(22,491	)		(41,227	)		(57,372	)
Non-cash preferred dividend			(727	)		(915	)		(1,158	)		(160	)		(160	)
Net loss attributable to common shareholders		$	(37,876	)	$	(10,774	)	$	(23,649	)	$	(41,387	)	$	(57,532	)
Net loss per common share — basic		$	(0.88	)	$	(0.31	)	$	(0.78	)	$	(1.76	)	$	(2.90	)
Net loss per common share — diluted		$	(0.88	)	$	(0.40	)	$	(0.78	)	$	(1.76	)	$	(2.90	)

	Twelve Months Ended March 31,
	2006		2005		2004			2003			2002
	(Dollars in thousands)
Financial condition:(2)
Property and equipment, net	$	129,893	$	123,406	$	53,898		$	54,483		$	61,089
Total assets		204,716		208,906		77,433			69,602			81,024
Long term obligations(3)(4)		165,387		149,734		78,525			74,524			38,210
Stockholders’ equity (deficit)		13,836		40,176		(22,720	)		(46,461	)		(49,276	)

(1)	Amount includes contract termination fees for the years ended March 31, 2004 and 2003 of $422 and $1,095, respectively.
(2)	See “Management’s discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”
(3)	Long term obligations include mortgage payable less current portion, convertible debt less current portion, estimated fair value of derivatives embedded within convertible debt, deferred rent, deferred revenue, unearned interest under capital lease obligations, capital lease obligations less current portion and notes payable less current portion.
(4)	Long term obligations as of March 31, 2005, 2004 and 2003 include approximately $600 in redeemable convertible preferred stock plus accrued dividends.

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      The quarterly selected financial statement data set forth below has been derived from our unaudited condensed consolidated financial statements. The data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and the related notes included elsewhere herein.

	Three Months Ended
	March 31,			December 31,			September 30,			June 30,
	2006			2005			2005			2005
	(Dollars in thousands except per share data)
Data center	$	19,015		$	18,882		$	13,961		$	10,671
Real estate services		—			—			—			—
Total revenue		19,015			18,882			13,961			10,671
Data center operations expenses		11,572			11,522			8,718			7,012
Other expenses		29,285			15,202			2,577			13,791
Total expenses		40,857			26,724			11,295			20,803
Net income (loss)		(21,842	)		(7,842	)		2,666			(10,132	)
Non-cash preferred dividend		(170	)		(185	)		(185	)		(188	)
Earnings allocation to participating shareholders		—			—			(397	)		—
Net income (loss) attributable to common shareholders	$	(22,012	)	$	(8,027	)	$	2,084		$	(10,320	)
Net income (loss) per common share — basic	$	(0.50	)	$	(0.18	)	$	0.05		$	(0.25	)
Net income (loss) per common share — diluted	$	(0.50	)	$	(0.18	)	$	(0.09	)	$	(0.25	)

	March 31,			December 31,			September 30,			June 30,
	2005			2004			2004			2004
	(Dollars in thousands except per share data)
Data center	$	13,472		$	18,320		$	7,915		$	7,112
Real estate services		—			242			303			784
Total revenue		13,472			18,562			8,218			7,896
Data center operations expenses		8,506			15,382			6,465			5,737
Construction contract expenses		(319	)		180			243			705
Other expenses		12,094			8,288			(1,304	)		2,030
Total expenses		20,281			23,850			5,404			8,472
Net income (loss)		(6,809	)		(5,288	)		2,814			(576	)
Non-cash preferred dividend		(193	)		(235	)		(245	)		(242	)
Earnings allocation to participating shareholders		—			—			(488	)		—
Net income (loss) attributable to common shareholders	$	(7,002	)	$	(5,523	)	$	2,081		$	(818	)
Net income (loss) per common share — basic	$	(0.19	)	$	(0.16	)	$	0.06		$	(0.02	)
Net income (loss) per common share — diluted	$	(0.19	)	$	(0.16	)	$	(0.11	)	$	(0.10	)

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

      This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 based on our current expectations, assumptions, and estimates about us and our industry. These forward-looking statements involve risks and uncertainties. Words such as “believe,” “anticipate,”

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

Critical Accounting Policies and Estimates

      Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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

•  revenue recognition and allowance for bad debt;

•  derivatives;

•  accounting for income taxes;

•  impairment of long-lived assets;

•  stock-based compensation; and

•  goodwill.

Revenue Recognition, Profit Recognition and Allowance for Bad Debts

      Data center revenues consist of monthly recurring fees for colocation, exchange point, and managed and professional services fees. These revenues also include monthly rental income for unconditioned space in our Miami facility. 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, we revised the estimated life of customer installations from 12 to 48 months. We have 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

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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, we allocate revenue between the elements based on acceptable fair value allocation methodologies, provided that each element meets the criteria for 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 when there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection of the receivable is reasonably assured. We assess collection based on a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. We do not request collateral from customers. If we determine that collection is not reasonably assured, we defer the fee and recognize revenue at the time collection becomes reasonably assured, which is generally upon receipt of cash. As of March 31, 2006 and 2005, accounts receivable amounted to $11.0 and $4.4 million, respectively. These amounts are net of allowance for doubtful accounts of approximately $200,000 each year.

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

      Customer contracts generally require us to meet certain service level commitments. If we do not meet the required service levels, we may be obligated to provide credits, usually a month of free service. Such credits, to date, have been insignificant.

Derivatives

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

      We do not hold or issue derivative instruments for trading purposes. However, our 9% Senior Convertible Notes, due June 15, 2009 contain embedded derivatives that require separate valuation from the Notes. We recognize these derivatives as liabilities on our balance sheet and measure them at their estimated fair value, and recognize changes in their estimated fair value in earnings in the period of change. We estimated that the embedded derivatives had an estimated fair value of approximately $20.2 million as of March 31, 2005, an estimated fair value of approximately $25.0 million as of March 31, 2006. The embedded derivatives derive their value primarily based on changes in the price and volatility of our common stock. The closing price of our common stock increased to $8.50 as of March 31, 2006 from $6.50 per share as of March 31, 2005. As a result, during the year ended March 31, 2006, we recognized an expense of $4.8 million due to the change in estimated fair value of the embedded derivatives.

      With the assistance of a third party, we estimate the fair value of our embedded derivatives using available market information and appropriate valuation methodologies. These embedded derivatives derive their value primarily based on changes in the price and volatility of our common stock. Over the life of the notes, given the historical volatility of our common stock, changes in the estimated fair value of the embedded derivatives are expected to have a material effect on our results of operations. Furthermore, we have estimated the fair value of these embedded derivatives using a theoretical model based on the historical volatility of our common stock over the past twelve months of 77%. If an active trading market develops for the notes or we are able to find comparable market data, we may in the future be able to use actual market data to adjust the estimated fair value of these embedded derivatives. Such adjustment could be significant and would be accounted for prospectively.

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Accounting for Income Taxes

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

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

      Our federal and state net operating loss carryforwards, amounting to approximately $206.6 million, begin to expire in 2011. On April 28, 2000, Terremark Holdings, Inc. merged with AmTec, Inc. We determined that the net operating losses generated prior to the AmTech merger may have been limited by Federal tax laws that impose substantial restrictions on the utilization of net operating losses and credit carryforwards in the event of an “ownership change” for tax purposes, as defined in Section 382 of the Internal Revenue Code. Such a limitation is effective for a five year period. As a result, for the year ended March 31, 2006, we determined that we are no longer limited in utilizing net operating losses generated prior to the AmTec merger. Should we determine that we would be able to realize our deferred tax assets in the foreseeable future, an adjustment to the deferred tax assets would increase income in the period such determination is made.

      In September 2005, the EITF reached consensus on Issue No. 05-8, “Income Tax Consequences of Issuing Convertible Debt with a Beneficial Conversion Feature” (“EITF 05-8”). EITF 05-8 concludes that (i) the issuance of convertible debt with a beneficial conversion feature results in a basis difference that should be accounted for as a temporary difference and (ii) the establishment of the deferred tax liability for the basis difference should result in an adjustment to additional paid in capital. We believe that the underlying concepts in EITF 05-8 should be similarly applied to debt for which an embedded derivative has been bifurcated under FASB Statement No. 133, “Accounting for Derivatives Instruments and Hedging Activities.” This application results in the recognition of deferred taxes upon issuance for the temporary differences existing on both the debt instrument and the embedded derivative. Subsequent changes in fair value of embedded derivative will result in remeasurement of the related deferred tax account. The guidance in this Issue should be implemented by retrospective application in financial statements for interim and annual reporting periods beginning after December 15, 2005. Early application is permitted for periods for which financial statements have not been issued. Our convertible debt has embedded derivatives that are bifurcated and accounted for separately. Our retrospective application of EITF 05-8 changes the composition of certain deferred tax disclosure items as of March 31, 2005 and did not have an impact on our financial position, results of operations or cash flows.

Impairment of Long-Lived Assets

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

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asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.

      As of March 31, 2006 and 2005, our long-lived assets, including property and equipment, net and identifiable intangible assets, totaled approximately $150.2 and $133.4 million, respectively. For the year ended March 31, 2005, we recognized impairment charges amounting to approximately $813,000. We recognized no impairment charge for the year ended 2006.

Stock-based Compensation

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

      On March 23, 2006, the Compensation Committee of our Board of Directors approved the vesting, effective as of March 31, 2006, of all unvested stock options previously granted under our stock option and executive incentive 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 460,000 shares became immediately exercisable. All other terms of these options remain unchanged.

      We will adopt Financial Accounting Standards Board Statement No. 123 (revised 2004) (“SFAS 123R”), “Share-Based Payment” as of April 1, 2006, and will then recognize compensation expense prospectively for all future stock-based grants. 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 fiscal quarter ended June 30, 2006. We have recognized approximately $756,000 (before tax) of compensation expense during the quarter ended March 31, 2006 as a result of the acceleration of the vesting of the options, but will not be required to recognize future compensation expenses for the accelerated options under FAS 123R unless we make modifications to the options, which is not anticipated. The future compensation expense that will be avoided, based on our implementation date for SFAS 123R on April 1, 2006, is approximately $1,500,000, $910,000, and $170,000 in the fiscal years ended March 31, 2007, 2008, and 2009, respectively. We, however, expect future stock-based compensation grants to have a significant impact on our result of operations.

Goodwill

      Goodwill and intangible assets that have indefinite lives are not amortized, but rather, are tested for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be fully recoverable. The goodwill impairment test involves a two-step approach. The first step involves a comparison of the fair value of each of our reporting units with its respective carrying amount. If a reporting unit’s carrying amount exceeds its fair value, the second step is performed. The second step involves a comparison of the implied fair value to the carrying value of that reporting unit’s goodwill. To the extent that a reporting unit’s carrying amount exceeds the implied fair value of its goodwill, an impairment loss is recognized. Identifiable intangible assets not subject to amortization are assessed for impairment by comparing the fair value of the intangible asset to its carrying amount. An impairment loss is recognized for the amount by which the carrying value exceeds fair value. Intangible assets that have finite useful lives are amortized over their useful lives.

      As of March 31, 2006 and 2005, our goodwill totaled approximately $16.8 million and $10.0 million, respectively. Goodwill represents the carrying amount of the excess purchase price over the fair value of identifiable net assets acquired in conjunction with (i) the acquisition of a corporation holding rights to develop and manage facilities catering to the telecommunications industry and (ii) the acquisition of Dedigate, N.V., a managed host service provider in Europe. We performed the annual tests for impairment for the rights to develop and manage facilities catering to the telecommunications industry in the quarters ended March 31, 2006 and 2005, and concluded that there were no impairments. Since Dedigate, N.V. was acquired in August 2005, we will perform the required annual test impairment for Dedigate related intangibles in the

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quarter ended September 30, 2006. For the year ended March 31, 2005, we recognized an impairment expense of approximately $813,000.

Results of Operations

Results of Operations for the Year Ended March 31, 2006 as Compared to the Year Ended March 31, 2005.

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

	For the Year
	Ended
	March 31,
	2006			2005
U.S. Operations		88	%		99	%
Outside U.S.		12	%		1	%
		100	%		100	%
Data center		100	%		97	%
Construction contract and fee revenue		0	%		3	%
		100	%		100	%

      Data center revenues consist of:

	For the Year Ended March 31,
	2006				2005
Colocation	$	28,126,193	45	%	$	21,402,860	61	%
Managed and professional services		28,088,192	45	%		9,017,282	26	%
Exchange point services		6,308,708	10	%		4,564,283	13	%
Other		6,189	0	%		918	0	%
	$	62,529,282	100	%	$	34,985,343	100	%
Technology infrastructure buildouts		—				11,832,745
Total data center revenues	$	62,529,282			$	46,818,088

      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 deployed customer base increased from 210 customers as of March 31, 2005 to 461 customers as of March 31, 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 (NOC) services, network monitoring, procurement and installation of equipment and procurement of connectivity, managed router services, secure information services, technical support and consulting.

      During the year ended March 31, 2005, we completed three technology infrastructure build-outs under U.S. federal government contracts that included the procurement, installation and configuration of colocation specialized equipment at the NAP of the Americas facility in Miami. Under the completed contract method, we recognized approximately $11.8 million as technology infrastructure build-out revenue upon delivery and formal acceptance by the customer. As a result, the percentage of data center revenues derived from the U.S. government decreased to 22% for the year ended March 31, 2006 from 42% for the year ended March 31, 2005.

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      Our utilization of total net colocation space increased to 12.1% as of March 31, 2006 from 8.3% as of March 31, 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 $5.0 million in managed services provided under government contracts, $5.4 million in managed services generated by Dedigate and $2.4 million in equipment resales. We also earned $5.6 million in the year ended March 31, 2006 for professional services related to feasibility and network engineering studies. The remainder of the increase is primarily the result of an increase in orders from both existing and new customer growth 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 4,007 as of March 31, 2006 from 2,505 as of March 31, 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.

      Construction Contracts and Fees. We have no construction projects currently in process and we did not recognize revenue from construction contracts for the year ended March 31, 2006. We recognized $1.2 million for the year ended March 31, 2005 related to one construction contract completed during that period. During the year ended March 31, 2005, we also collected management fees from TECOTA, the entity that then owned the building in which the NAP of the Americas is located, equal to approximately $145,000. These management fees are non-existent in the current period due to the acquisition of TECOTA on December 31, 2004.

      Data Center Operations Expenses. Excluding $9.7 million in costs incurred related to technology infrastructure build-outs, data center expenses increased $12.4 million to $38.8 million for the year ended March 31, 2006 from $26.4 million for the year ended March 31, 2005. Data center operations expenses consist mainly of operations personnel, procurement of connectivity and equipment, technical and colocation space rental, electricity, chilled water, insurance, property taxes, and security services. The increase is the result of increases of $5.4 million in managed services costs, $4.1 million in personnel costs, $2.6 million in TECOTA facility costs, $1.3 million in electricity and chilled water costs, and $1.3 in facilities maintenance costs, offset by a decrease of $3.5 million in technical and colocation space costs.

      In connection with the three completed technology infrastructure build-outs during the year ended March 31, 2005, we incurred $9.7 million in direct costs, including the purchase of specialized equipment. Under the completed contract method, these contract costs were deferred until our delivery and acceptance by the customer in the quarters ended December 31, 2004 and March 31, 2005.

      The increase in managed service costs include a $2.5 million increase in the procurement of connectivity and a $2.1 million increase in the cost of equipment resales. 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 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 179 employees as of March 31, 2006 from 119 as of March 31, 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.

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      The decrease in technical and colocation space costs is the result of the elimination of $6.8 million in technical space rental costs as a result of the acquisition of TECOTA, offset by $2.2 million in new leases in Madrid, Frankfurt, London, Herndon (Virginia), Hong Kong and Singapore. We also have new leases in Gent and Amsterdam as a result of the acquisition of Dedigate.

      Construction Contract Expenses. There was no construction activity during the year ended March 31, 2006. Construction contract expenses were $809,000 for the year ended March 31, 2005.

      General and Administrative Expenses. General and administrative expenses increased approximately $2.4 to $15.6 million for the year ended March 31, 2006 from $13.2 million for the year ended March 31, 2005. General and administrative expenses consist primarily of payroll and related expenses, professional service fees, travel, rent, and other general corporate expenses. This increase was primarily due to an increase of approximately $1.3 million in professional fees and $407,000 in personnel costs. The increase in personnel costs is mainly due to a stock-based compensation charge of approximately $300,000 as a result of the acceleration of the vesting of employee stock options whose payroll related expenses are included in general and administrative expenses. The increase in professional services is mainly due to additional audit and consulting fees resulting from our Sarbanes-Oxley compliance work efforts. Going forward, 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 $3.1 million to $8.5 million for the year ended March 31, 2006 from $5.4 million for the year ended March 31, 2005. The most significant components of sales and marketing are payroll, sales commissions and promotional activities. Payroll and sales commissions increased by $1.5 million mainly due an increase in staff levels, which is consistent with our increase in bookings. Our sales and marketing staff levels increased to 52 employees as of March 31, 2006 from 30 as of March 31, 2005.

      Depreciation and Amortization Expenses. Depreciation and amortization expense increased $3.0 million to $8.7 million for the year ended March 31, 2006 from $5.7 million for the year ended March 31, 2005. The increase is mainly due to the acquisition of TECOTA, the entity that owns the building that houses the NAP of the Americas.

      Impairment of Long-lived Assets. During the year ended March 31, 2005, we wrote off $813,000 related to equipment that was considered obsolete. We did not have any impairment of long-lived assets during the year ended March 31, 2006.

      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, 2005 estimated fair value of $20.2 million and a March 31, 2006 estimated fair value of $25.0 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 increased to $8.50 on March 31, 2006 from $6.50 as of March 31, 2005. As a result, during the year ended March 31, 2006, we recognized a loss of $4.8 million from the change in estimated fair value of the embedded derivatives. For the year ended March 31, 2005, we recognized a gain of $15.3 million 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 (77% as of March 31, 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

26

estimated fair value of these embedded derivatives could be significantly different. Any such adjustment would be made prospectively.

      Gain on Debt Restructuring and Conversion. During the year ended March 31, 2005, as a result of the extinguishment of notes payable and convertible debentures, we recognized a gain totaling $3.4 million, representing the recognition of the unamortized balance of a debt restructuring deferred gain and the write-off of debt issuance costs, net of an early redemption premium payment.

      Interest Expense. Interest expense increased $9.5 million to $25.0 million for the year ended March 31, 2006 from $15.5 million for the year ended March 31, 2005. This increase is mainly due to additional debt incurred, including our mortgage loan, our senior secured notes and our senior convertible notes.

      Interest Income. Interest income increased $1.1 million to $1.7 million for the year ended March 31, 2006 from approximately $666,000 for the year ended March 31, 2005. This increase was due to available cash balances as a result of the March 14, 2005 sale of 6,000,000 shares of our common stock.

      Net Loss. Net loss for our reportable segments was as follows:

	For the Year Ended March 31,
	2006			2005
Data center operations	$	(37,149,174	)	$	(9,490,543	)
Real estate services		—			(368,809	)
	$	(37,149,174	)	$	(9,859,352	)

      Excluding the change in the estimated fair value of the embedded derivative, and the gain on debt restructuring and conversion, the net loss from data center operations increased $3.8 million to $32.4 million for the year ended March 31, 2006 when compared to $28.6 million of the year ended March 31, 2005. The increase in our net loss is primarily due to an increase in interest expense of approximately $9.6 million, offset by a decrease in our net loss of approximately $4.8 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.

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

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

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

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      Data center revenues consist of:

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

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

      Data center revenues consist of:

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

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

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

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

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

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

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

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

      We anticipate an increase in revenue from colocation exchange point and managed and professional services as we add more customers, sell additional services to existing customers and introduce new products

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and services. We anticipate that the percentage of revenue derived from federal government customers will fluctuate depending on the timing of exercise of expansion options under existing contracts and the rate at which we sell additional services to the public sector.

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

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

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

      The increase in personnel costs is mainly due to an increase in operations and engineering staff levels. Our staff levels increased to 119 employees as of March 31, 2005 from 75 as of March 31, 2004, which resulted in a $3.8 million increase in base payroll and relocation expenses of approximately $200,000. The increase in employees is mainly attributable to the hiring of personnel with the required security clearances to work under existing and anticipated government contracts. Incentive bonuses expense totaled approximately $607,000 during the year ended March 31, 2005. There were no incentive bonuses in the year ended March 31, 2004.

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

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

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

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

      General and Administrative Expenses. Excluding non-cash stock based compensation charges of $2.2 million in the year ended March 31, 2004, general and administrative expenses increased $2.1 million or 18% to $13.2 million for the year ended March 31, 2005 from $11.1 million for the year ended March 31, 2004. The increase was due to an additional $1.3 million in consulting and accounting fees, and $602,000 in

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travel expenses. The increase in consulting and accounting fees is mainly due to additional SEC reporting and Sarbanes-Oxley compliance work. Increase in travel expenses is mainly due to increased travel to our facilities in Madrid, Corvin and Sao Paulo.

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

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

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

      Change in Fair Value of Derivatives Embedded within Convertible Debt. Our 9% senior convertible notes due June 15, 2009 contain embedded derivatives that require separate valuation from the senior convertible notes. We recognize these embedded derivatives as a liability in our balance sheet, measure them at their estimated fair value and recognize changes in the estimated fair value of the derivative instruments in earnings. We estimated that the embedded derivatives had an initial estimated fair value of approximately $35.5 and a March 31, 2005 estimated fair value of approximately $20.2. The embedded derivatives derive their value primarily based on changes in the price and volatility of our common stock. The closing price of our common stock decreased to $6.50 on March 31, 2005 from $9.30 per share as of the initial valuation date. As a result, during the year ended March 31, 2005, we recognized a $15.3 million gain from the change in estimated fair value of the embedded derivatives. Over the life of the senior convertible notes, given the historical volatility of our common stock, changes in the estimated fair value of the embedded derivatives are expected to have a material effect on our results of operations. The estimated fair value of the embedded derivatives increases as the price of our common stock increases. See “Quantitative and Qualitative Disclosures about Market Risk.” Furthermore, we have estimated the fair value of these embedded derivatives using a theoretical model based on the historical volatility of our common stock of (72% as of March 31, 2005) over the past year. If a market develops for our senior convertible notes or we are able to find comparable market data, we may be able to use in the future market data to adjust our historical volatility by other factors such as trading volume and our estimated fair value of these embedded derivatives could be significantly different. Any such adjustment would be made prospectively. During the year ended March 31, 2004, we did not have any embedded derivatives.

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

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

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

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

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Liquidity and Capital Resources

Liquidity

      We have incurred losses from operations in each quarter and annual period since our merger with AmTec, Inc. Although cash used in operations for the year ended March 31, 2006 and 2005 was approximately $11.9 million and $24.4 million, respectively, we generated approximately $457,000 in cash from operations in the quarter ended March 31, 2006. As of March 31, 2006, our total liabilities were approximately $190.9 million. Our working capital decreased from $34.8 million, as of March 31, 2005, to $10.7 million, as of March 31, 2006.

      As of March 31, 2006, our principal source of liquidity was our $20.4 million in cash and cash equivalents. We anticipate that this cash, coupled with our anticipated cash flows generated from operations, will be sufficient to meet our capital expenditures, working capital, debt service and corporate overhead requirements in connection with our currently identified business objectives. Our projected revenues and cash flows depend on several factors, some of which are beyond our control, including the rate at which we provide services, the timing of exercise of expansion options by customers under existing contracts, the rate at which new services are sold to the government sector and the commercial sector, the ability to retain the customer base, the willingness and timing of potential customers in outsourcing the housing and management of their technology infrastructure to us, the reliability and cost-effectiveness of our services and our ability to market our services.

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 Citigroup $49.0 million loan is collateralized by a first mortgage on the NAP of the Americas building and a security interest in all existing building improvements, certain of our deposit accounts and any cash flows generated from customers by virtue of their activity at the NAP of the Americas building. The mortgage loan matures in February 2009 and bears interest at a rate per annum equal to the greater of (a) 6.75% and (b) LIBOR plus 4.75% (4.90% as of March 31, 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 amount is paid in full. The terms of the mortgage loan agreement require us to pay annual rent of $6.9 million. 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. 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

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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 a portion of the net proceeds of $81.0 million to pay approximately $46.3 million of outstanding loans and convertible debt. The notes are unsecured obligations and 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 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

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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 year ended March 31, 2006 was approximately $11.9 million compared to cash used in operations of $24.4 million for the year ended March 31, 2005, an increase of approximately $12.5 million. We used cash to primarily fund our net loss, including cash interest payments on our debt.

      Cash used in investing activities for the year ended March 31, 2006 was $6.0 million compared to cash used in investing activities of $91.0 million for the year ended March 31, 2005, an increase of $85.0 million. This decrease is primarily due to the payments made in connection with the acquisitions of NAP Madrid and TECOTA in 2004.

      Cash provided by financing activities for the year ended March 31, 2006 was $5.7 million compared to cash provided by financing activities of $155.0 million for the year ended March 31, 2005, a decrease of $149.3 million. For the year ended March 31, 2006, cash used in financing activities included $5.3 million of payments on loans and capital lease obligations. For the year ended March 31, 2005, cash provided by financing activities included $124.6 in proceeds principally from a new mortgage loan, the senior secured notes and the senior convertible notes partially offset by $46.6 million in payments of loans and convertible debt.

Guarantees and Commitments

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

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

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

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

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

•  Terremark repurchases any of its common stock.

      In addition, we have 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;

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•  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 for these commitments, as well as the combined aggregate maturities (principle and interest) for the following obligations for each of the twelve months ended:

	Capital Lease
	Obligations		Operating Leases		Convertible Debt		Mortgage Payable		Notes Payable		Total
2007	$	690,453	$	5,009,933	$	7,762,500	$	4,219,846	$	4,123,739	$	21,728,291
2008		511,169		4,879,272		7,762,500		4,219,846		4,123,739		21,416,002
2009		223,537		3,745,270		7,762,500		49,414,809		34,669,953		95,795,791
2010		119,110		3,726,497		90,131,250		—		—		93,976,857
2011		117,340		3,800,232		—		—		—		3,917,572
Thereafter		16,310		33,309,488		—		—		—		33,325,798
	$	1,677,919	$	54,470,692	$	113,418,750	$	57,854,501	$	42,917,431	$	270,160,311

New Accounting Pronouncements

      In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment” (“SFAS No. 123(R)”). SFAS No. 123(R) revises SFAS No. 123, “Accounting for Stock-Based Compensation” and requires companies to expense the fair value of employee stock options and other forms of stock-based compensation, such as employee stock purchase plans and restricted stock awards. In addition, SFAS No. 123(R) supersedes Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees” and amends SFAS No. 95, “Statement of Cash Flows.” Under the provisions of SFAS No. 123(R), stock-based compensation awards must meet certain criteria in order for the award to qualify for equity classification. An award that does not meet those criteria will be classified as a liability and be remeasured each period. SFAS No. 123(R) retains the requirements on accounting for the income tax effects of stock-based compensation contained in SFAS No. 123; however, it changes how excess tax benefits will be presented in the statement of cash flows from operating to financing activities. In addition, in March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB No. 107”), which offers guidance on SFAS No. 123(R). SAB No. 107 was issued to assist preparers by simplifying some of the implementation challenges of SFAS No. 123(R) while enhancing the information that investors receive. Key topics of SAB No. 107 include discussion on the valuation models available to preparers and guidance on key assumptions used in these valuation models, such as expected volatility and expected term, as well as guidance on accounting for the income tax effects of SFAS No. 123(R) and disclosure considerations, among other topics. SFAS No. 123(R) and SAB No. 107 were effective for reporting periods beginning after June 15, 2005; however in April 2005, the SEC approved a new rule that SFAS No. 123(R) and SAB No. 107 are now effective for public companies for annual, rather than interim, periods beginning after June 15, 2005. As a result, the first quarter ended June 30, 2006 will be the first period in which we will report stock-based compensation under the provisions of SFAS No. 123(R) and SAB No. 107. The adoption of SFAS No. 123(R), including related FASB Staff Positions issued during 2005 and 2006, and SAB No. 107 are expected to have a significant impact on the our financial position and results of operations. Under SFAS No. 123(R), we have selected the modified prospective application method and, as a result, will not restate any prior financial statements.

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      In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an Amendment of APB Opinion No. 29” (“SFAS No. 153”). 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 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 it enters into, if any.

      In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations, an Interpretation of FASB Statement No. 143” (“FIN No. 47”). FIN No. 47 clarifies that the term, conditional retirement obligation, as used in SFAS No. 143, “Accounting for Asset Retirement Obligations”, refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. FIN No. 47 further clarifies that the obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement and provides guidance on how an entity might reasonably estimate the fair value of such a conditional asset retirement obligation. FIN No. 47 is effective for fiscal years ending after December 15, 2005. The adoption of FIN No. 47 has not had a significant impact on our financial position, results of operations and cash flows.

      In June 2005, the FASB approved EITF Issue 05-6, “Determining the Amortization Period for Leasehold Improvements Purchased after Lease Inception or Acquired in a Business Combination” (“EITF 05-6”). EITF 05-6 addresses the amortization period for leasehold improvements acquired in a business combination and leasehold improvements that are placed in service significantly after and not contemplated at the beginning of a lease term. EITF 05-6 states that (i) leasehold improvements acquired in a business combination should be amortized over the shorter of the useful life of the assets or a term that includes required lease periods and renewals that are deemed to be reasonably assured at the date of acquisition and (ii) leasehold improvements that are placed into service significantly after and not contemplated at or near the beginning of the lease term should be amortized over the shorter of the useful life of the assets or a term that includes required lease periods and renewals that are deemed to be reasonably assured at the date the leasehold improvements are purchased. EITF 05-6 is effective for leasehold improvements that are purchased or acquired in reporting periods beginning after June 29, 2005. The adoption of EITF 05-6 has not had a significant impact on our financial position and results of operations.

      In September 2005, the FASB approved EITF Issue 05-7, “Accounting for Modifications to Conversion Options Embedded in Debt Securities and Related Issues” (“EITF 05-7”). EITF 05-7 addresses that the change in the fair value of an embedded conversion option upon modification should be included in the analysis under EITF Issue 96-19, “Debtor’s Accounting for a Modification or Exchange of Debt Instruments,” to determine whether a modification or extinguishment has occurred and that changes to the fair value of a conversion option affects the interest expense on the associated debt instrument following a modification. Therefore, the change in fair value of the conversion option should be recognized upon the modification as a discount or premium associated with the debt, and an increase or decrease in additional paid-in capital. EITF 05-7 is effective for all debt modifications in annual or interim periods beginning after December 15, 2005. The adoption of EITF 05-7 will not have a significant impact on our financial position and results of operations.

      In September 2005, the EITF reached consensus on Issue No. 05-8, “Income Tax Consequences of Issuing Convertible Debt with a Beneficial Conversion Feature” (“EITF 05-8”). EITF 05-8 concludes that (i) the issuance of convertible debt with a beneficial conversion feature results in a basis difference that should be accounted for as a temporary difference and (ii) the establishment of the deferred tax liability for the basis difference should result in an adjustment to additional paid in capital. We believe that the underlying concepts in EITF 05-8 should be similarly applied to debt for which an embedded derivative has been bifurcated under FASB Statement No. 133, “Accounting for Derivatives Instruments and Hedging Activi-

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ties.” This application results in the recognition of deferred taxes upon issuance for the temporary differences existing on both the debt instrument and the embedded derivative. Subsequent changes in fair value of embedded derivative will result in remeasurement of the related deferred tax account. The guidance in this Issue should be implemented by retrospective application in financial statements for interim and annual reporting periods beginning after December 15, 2005. Early application is permitted for periods for which financial statements have not been issued. Our convertible debt has embedded derivatives that are bifurcated and accounted for separately. Our retrospective application of EITF 05-8 changes the composition of certain deferred tax disclosure items as of March 31, 2005 and did not have an impact on our financial position, results of operations or cash flows.

      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.

ITEM 7A. 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 March 31, 2006, the table below provides information about the estimated fair value of the derivatives embedded within our senior convertible notes and

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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	$	2,677,346
$4.00	$	8,674,892
$6.00	$	15,851,837
$8.00	$	22,992,648
$10.00	$	30,608,051

      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 on our mortgage loan (4.90% at March 31, 2006) would result in an annual increase in interest expense of approximately $460,000. Based on the yield curve published by the U.S. Department of the Treasury and other available information, we project interest expense on our variable rate debt to increase approximately $88,000, $92,000, $92,000 and $97,000 for the years ended March 31, 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, over 88% 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

      The financial statements required by this Item 8 are attached hereto as Exhibit (a)(1) to Item 15 of this Annual Report on Form 10-K and are incorporated herein by reference.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

      There were no disagreements with accountants on accounting or financial disclosures during the last three fiscal years. On October 5, 2005, our board of directors and our audit committee dismissed PricewaterhouseCoopers LLP (PwC) as our independent registered public accounting firm and engaged KPMG LLP to serve as our new independent registered public accounting firm. The dismissal of PwC became effective as of the date PwC completed its procedures on our unaudited interim financial statements as of September 30, 2005 and for the three and six month periods then ended and the quarterly report on Form 10-Q in which such unaudited interim financial statements were included. For more information with respect to this matter, see our current reports on Form 8-K filed on October 12, 2005 and November 16, 2005 and “Item 14 — Principal Accountant Fees and Services.”

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

      As of the end of the period covered by this report, Terremark carried out an evaluation, under the supervision and with the participation of Terremark’s management, including Terremark’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Terremark’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, at March 31, 2006, Terremark’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective in ensuring that information required to be disclosed in the reports Terremark files and submits under the Exchange Act are recorded, processed, summarized and reported as and when required.

Management’s Report on Internal Control Over Financial Reporting

To the Shareholders of Terremark Worldwide, Inc.:

      The management of Terremark Worldwide, Inc., together with its consolidated subsidiaries (Terremark), is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Terremark’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

      Terremark’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Terremark; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of Terremark’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Terremark’s assets that could have a material effect on the consolidated financial statements.

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

      Management assessed the effectiveness of Terremark’s internal control over financial reporting as of March 31, 2006. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in “Internal Control — Integrated Framework.” Based on our assessment and those criteria, management determined that Terremark maintained effective internal control over financial reporting as of March 31, 2006.

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      In August 2005, Terremark Worldwide, Inc. acquired Dedigate, N.V., and management excluded from its assessment of the effectiveness of Terremark Worldwide, Inc.’s internal control over financial reporting as of March 31, 2006, Dedigate, N.V.’s internal control over financial reporting associated with total assets of $11,232,360 and total revenues of $6,491,132 included in the consolidated financial statements of Terremark Worldwide, Inc. and subsidiaries as of and for the year ended March 31, 2006.

      Terremark’s independent registered public accounting firm has issued their report on management’s assessment of Terremark’s internal control over financial reporting, which appears on page F-1.

Changes in Internal Control Over Financial Reporting

      In connection with the assessment of our internal control over financial reporting included in our Annual Report on Form 10-K, as amended by Form 10-K/ A filed on August 5, 2005, Form 10-K/ A filed on August 17, 2005 and Form 10-K/ A filed on February 2, 2006, we determined that material weaknesses existed in our internal control over financial reporting. A material weakness is a control deficiency, or combination of control deficiencies, that results in a more than remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. These material weaknesses related to (i) maintaining adequate controls to restrict access to key financial applications and data, and controls over custody and processing of disbursements and of customer payments received by mail; (ii) controls over the billing function to ensure invoices capture all services delivered to customers and that such services are invoiced and recorded accurately as revenue; and (iii) controls over the accounting for and calculation of earnings per share after considering the impact of the embedded derivative with the senior convertible notes. We have fully remediated these material weaknesses as a result of the following remediation actions:

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

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

•  We have engaged additional accounting personnel with appropriate experience and qualifications to perform additional quality review procedures and have implemented the use of financial checklists specific to the documentation and evaluation of the applicable accounting treatment for the calculation of earnings per share.

•  We have upgraded our main financial information system to be able to effectively monitor activities of database and system administrators.

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

•  We have reconciled customer billing to customer contracts and other source documents, including a physical observation of actual services being provided.

      Except for the remediation disclosed above, there were no changes in our internal control over financial reporting that occurred during our last fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness

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

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

ITEM 9B. OTHER INFORMATION.

      None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

      Our executive officers and directors and their ages as of June 14, 2006, are as follows:

Name	Age		Principal Position
Manuel D. Medina		53	Chairman of the Board, President and Chief Executive Officer
Joseph R. Wright, Jr.		68	Vice Chairman of the Board
Guillermo Amore		67	Director
Timothy Elwes		70	Director
Antonio S. Fernandez		66	Director
Fernando Fernandez-Tapias		67	Director
Arthur L. Money		66	Director
Marvin S. Rosen		64	Director
Miguel J. Rosenfeld		56	Director
Rodolfo A. Ruiz		57	Director
Jamie Dos Santos		45	Chief Marketing Officer
John Neville		47	Senior Vice President — Sales
Jose A. Segrera		35	Chief Financial Officer
Marvin Wheeler		52	Chief Operations Officer

      Manuel D. Medina has served as our Chairman of the Board, President and Chief Executive Officer since April 28, 2000, the date of our merger, and as that of Terremark since it’s founding in 1982. In addition, Mr. Medina is a managing partner of Communication Investors Group, one of our investors. Mr. Medina has been a director of Fusion Telecommunications International since December 14, 1998. Before founding Terremark, Mr. Medina, a certified public accountant, worked with PricewaterhouseCoopers LLP. Subsequently, he established and operated an independent financial and real estate consulting company. Mr. Medina earned a Bachelors of Science degree in Accounting from Florida Atlantic University in 1974.

      Joseph R. Wright, Jr. has served as our Vice Chairman of the Board since April 28, 2000. Mr. Wright currently is Chief Executive Officer and a director of PanAmSat, a global provider of satellite-based communication services. He is also a director of Scientific Games Corp. from 1997 to 2000. Mr. Wright served as Chairman of the Board of GRC International, Inc., a United States public company that provides technical information technology support to government and private entities. From 1995 to 2003, Mr. Wright also served as Co-Chairman of Baker & Taylor Holdings, Inc., an international book and video distribution company, and Vice Chairman of Jefferson Consulting Group, a Washington D.C. consulting firm. From 1989 to 1994, Mr. Wright served as Executive Vice President, Vice Chairman and Director of W.R. Grace & Co., an international chemicals and health care company, President of Grace Energy Corporation and Chairman of Grace Environmental Company. From 1982 to 1989, Mr. Wright held the positions of Director and Deputy Director of the Office of Management and Budget, The White House, and was a member of President Reagan’s cabinet. Before 1982, he served as Deputy Secretary, United States Department of Commerce,

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President of Citicorp Retail Services and Retail Consumer Services, held posts in the United States Department of Agriculture and the United States Department of Commerce, and was Vice President and Partner of Booz Allen & Hamilton, a management consulting firm.

      Guillermo Amore has served as a member of our board of directors since February 2001. From August 2000 to February 2001, Mr. Amore served as the President and Chief Operating Officer of our wholly-owned subsidiary, Terremark Latin America, Inc., prior to which, he served as Chairman and Chief Executive Officer of Spectrum Telecommunications Corporation until its acquisition. Mr. Amore has nearly 35 years of telecommunications experience, much of it focused on the developing markets of Latin America and the Caribbean. During his tenure at GTE Corporation he built an extensive network of contacts in the region. These contacts served him well in business development and regulatory affairs during his stewardship of Grupo Isacell S.A. of Mexico and of Spectrum Telecommunications. Mr. Amore holds an MBA from Harvard University and a Bachelors degree in Science in Electrical Engineering from Pontificia Universidad Javeriana, Colombia.

      Timothy Elwes has served as a member of our board of directors since April 2000. Mr. Elwes also served as member of the board of directors of Timothy Elwes & Partners Ltd., a financial services company, from May 1978 until October 1994, the business of which was merged into Fidux Trust Co. Ltd. in December 1995. He has been a non-executive director of Partridge Fine Arts plc, a public company since 1989. Since December 2000 he has served as a director of Timothy Elwes & Partners Ltd., a financial services company.

      Antonio S. Fernandez was elected to our Board Directors in September 2003. In 1970, Mr. Fernandez worked as a Systems Engineering Manager at Electronic Data Systems (EDS). In 1971, Mr. Fernandez joined duPont Glore Forgan as a Vice-President in Operations. In 1974, he joined Thomson McKinnon as Director of Operations and Treasurer. In 1979, he worked at Oppenheimer & Co. Inc. as Director of Operations and Treasurer where he also served as Chief Financial Officer from 1987 until 1994 and a member of the Board of Directors from 1991 until 1998. In 1991, Mr. Fernandez founded and headed the International Investment Banking Department at Oppenheimer & Co. and served in that capacity until 1999. Mr. Fernandez served on the Board of Banco Latinoamericano de Exportaciones from 1992 until 1999. He also served as Trustee of Mulhenberg College, PA from 1995 until 1998. Mr. Fernandez has been since June 2004 a director of Spanish Broadcasting Systems, an operator of radio stations in the U.S. He graduated from Pace University, NY in 1968 with a B.B.A.

      Fernando Fernandez-Tapias has served as a member of our board of directors since March 31, 2003. Since May 1991, Mr. Fernandez-Tapias has served as the President of Naviera F. Tapias. Mr. Fernandez-Tapias has also served as a board member of Union Fenosa. In addition, Mr. Fernandez-Tapias founded Roll-On Roll-Off, Interpuertos, Spain Shipping, Naviera Amura and Naviera Roda. Mr. Fernandez-Tapias currently serves as the President of the Cámara Oficial de Comercio e Industria de Madrid (Official Chamber of Commerce and Industry of Madrid). Mr. Fernandez-Tapias holds a degree from the Instituto Internacional de Empresas de la Universidad Comercial de Deusto.

      Arthur L. Money has served as a member of our board of directors since May 2003. Since September 2002, Mr. Money has been a member of the board of directors of SafeNet, a provider of Information Technology security solutions. From 1999 to 2001, Mr. Money was the Assistant Secretary of Defense (C3I) and Department of Defense CIO. Prior to this, Mr. Money served as the Assistant Secretary of the Air Force for Research, Development, and Acquisition, and was Vice President and Deputy General Manager of TRW. From 1989 to 1995, Mr. Money was President of ESL, Inc. He has received distinguished public service awards from the U.S. Department of Defense (Bronze Palm), the U.S. Air Force, and the U.S. Navy. He is currently President of ALM Consulting specializing in command control and communications, intelligence, signal processing, and information processing. Mr. Money received his Master of Science Degree in Mechanical Engineering from the University of Santa Clara and his Bachelor of Science Degree in Mechanical Engineering from San Jose State University.

      Marvin S. Rosen has served as a member of our board of directors since April 2000. Mr. Rosen is a co-founder and Chairman of the Board of Directors of Fusion Telecommunications International and served as its Vice Chairman from December 1998 to April 2000 and has served as its Chief Executive Officer since

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April 2000. From September 1995 through January 1997, Mr. Rosen served as the Finance Chairman of the Democratic National Committee. Mr. Rosen currently serves on the Board of Directors of the Robert F. Kennedy Memorial, since 1995 and Fusion Telecommunications International, Inc., since 1997, where he has also been Vice-Chairman since December 1998. Mr. Rosen received his Bachelor of Science degree in Commerce from the University of Virginia, his LL.B. from Dickinson School of Law and his LL.M. in Corporations from New York University Law School.

      Miguel J. Rosenfeld has served as a member of our board of directors since April 2000. Since November 1991, he has also served as a Senior Vice President of Delia Feallo Productions, Inc., where he has been responsible for the development of soap opera productions in Latin America. From January 1995 until May 1998, he was the Director of Affiliates and Cable for Latin America for Protele, a division of Televisa International LLC. From December 1984 until September 1998, he was a sales manager for Capitalvision International Corporation. Mr. Rosenfeld holds a Bachelors degree in Administration from the University of Buenos Aires which he earned in 1975.

      Rodolfo A. Ruiz has served as a member of our Board of Directors since July 2003. Since 2004, Mr. Ruiz has served as Executive Vice President — Spirits for Southern Wine and Spirits of America, Inc. From 1999 to 2003, Mr. Ruiz served as the President and CEO of Bacardi U.S.A. and held a series of senior management positions within the Bacardi organization since 1979, inclusive of having served as President and CEO of Bacardi Global Brands, President and CEO of Bacardi Asia/ Pacific Region, and several senior executive sales, marketing, financial and operations positions within Bacardi USA. Prior to joining Bacardi, from 1966 to 1979, Mr. Ruiz, in his capacity as a certified public accountant, served as a Senior Auditor, Senior Internal Auditor, and Audit Manager with Price Waterhouse & Co. for a wide variety of public and private clients and projects in the United States and Mexico, as well as throughout Latin America, interspersed by a term, from 1973 to 1975, with International Basic Economy Corp, otherwise known as IBEC/ Rockefeller Group. Mr. Ruiz holds a Bachelor of Business degree, Cum Laude, from the University of Puerto Rico.

      Jamie Dos Santos has served as our Chief Marketing Officer since March 2003. From April 2001 to March 2003, Ms. Dos Santos served as Senior Vice President Global Sales. From 1981 to April 2001, Ms. Dos Santos worked with the Bell System. Ms. Dos Santos held various positions during her tenure with Telcordia/ Bell Systems including Director of Professional Services Latin America, Regional Account Director starting her career as a Business Service Representative prior to divestiture. Ms. Dos Santos attended the University of Florida and Bellcore’s elite Technical training curriculum receiving various degrees in telecommunications.

      John Neville has served as our Senior Vice President — Sales since June 2005. Previously, from September 2003 to April 2005, he served as Executive Vice President of Sales and Business Development for Arsenal Digital Solutions Worldwide, Inc. Mr. Neville has held various senior level positions within the Telecommunications industry including Major Account Vice President for Nortel Networks from 1999 to 2003 and Vice President of Market Management and Enterprise Sale for Verizon Communications (formerly NYNEX/ Bell Atlantic) from 1994 to 1999. Mr. Neville received his BBA from Southern Methodist University and attended the Executive program at University of Virginia, Darden School of Business.

      Jose A. Segrera has served as our Chief Financial Officer since September 2001. From September 2000 to June 2001, Mr. Segrera served as our Vice President — Finance. From January 2000 to September 2000, Mr. Segrera served as the interim Chief Financial Officer of FirstCom Corporation. From June 1996 to November 1997, Mr. Segrera was a manager in the assurance practice at KPMG Peat Marwick LLP. Mr. Segrera received his Bachelors in Business Administration and his Masters in Professional Accounting from the University of Miami.

      Marvin Wheeler has served as our Chief Operations Officer since November 2003. Previously he served as our Senior Vice President, Worldwide Operations since March 2003. From March 2001 to March 2003, Mr. Wheeler served as Senior Vice President of Operations and General Manager of the NAP of the Americas. From June 1978 to March 2000, Mr. Wheeler managed the Data Center and WAN/ LAN Operations for BellSouth, Mr. Wheeler graduated from the University of Florida, where he earned a degree in Business Administration with a concentration in marketing.

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Section 16(a) Beneficial Ownership Reporting Compliance

      Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than 10% shareholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.

•  Based solely on our review of the copies of the forms furnished to us and written representations of the reporting persons, we believe that during the fiscal year ended March 31, 2006 all Section 16(a) filing requirements applicable to our officers, directors and greater than 10% beneficial owners were in compliance.

ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table

      The following table presents information concerning compensation for our chief executive officer and the four most highly compensated executive officers, which we refer to as our named executive officers, for services in all capacities during the fiscal years indicated.

		Annual Compensation								Long Term
										Compensation
		Fiscal		Salary		Commissions		Bonus
Name and Principal Position		Year		($)		($)		($)		Options/ SARS (#)
Manuel D. Medina			2006		350,000		—		—		—
	Chairman of the Board,		2005		350,000		—		—		21,500
	President and		2004		350,000		—		—		—
	Chief Executive Officer
Jamie Dos Santos			2006		250,000		280,000		—		10,000
	Chief Marketing Officer		2005		250,000		239,000		—		10,000
			2004		250,000		104,000		—		20,000
Jose A. Segrera			2006		200,000		—		—		10,000
	Chief Financial Officer		2005		200,000		—		50,000		10,000
			2004		195,000		—		—		10,000
Marvin Wheeler			2006		200,000		—		—		10,000
	Chief Operations Officer		2005		200,000		—		50,000		10,000
			2004		195,000		—		—		20,000
John Neville			2006		200,000		60,000		—		25,000
	Senior Vice President — Sales		2005		—		—		—		—
			2004		—		—		—		—

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Option/ SAR Grants in Last Fiscal Year

      The following table sets forth information concerning grants of stock options made during the fiscal year ended March 31, 2006 to our named executive officers. No stock appreciation rights were granted during the fiscal year ended March 31, 2006.

Individual Grants										Potential
										Realizable Value
			% of Total							At Assumed
			Options							Annual Rates Of
	Number of		Granted							Stock Price
	Securities		to							Appreciation For
	Underlying		Employees			Exercise				Option Term(1)
	Options Granted		in Fiscal			Price		Expiration
Name	(#)		Year			($/Sh)		Date		5% ($)		10% ($)
Manuel D. Medina		—		—			—		—		—		—
Jose A. Segrera(2)		10,000		2.9	%	$	6.74		7/14/15		42,387		107,418
John Neville(2)		25,000		7.3	%	$	6.20		4/18/15		97,479		247,030
Jamie Dos Santos(2)		10,000		2.9	%	$	6.74		7/14/15		42,387		107,418
Marvin Wheeler(2)		10,000		2.9	%	$	6.74		7/14/15		42,387		107,418

(1)	These amounts are based on assumed appreciation rates of 5% and 10% set by the Securities and Exchange Commission rules and are not intended to forecast possible future appreciation, if any, of our stock price.
(2)	On March 23, 2006, our compensation committee approved the vesting, effective as of March 31, 2006, of all unvested stock options previously granted under our stock option and executive incentive plans.

Aggregated Options Exercises in Last Fiscal Year and Fiscal Year-End Option Values

      The following table sets forth information regarding option exercises by our named executive officers during the fiscal year ended March 31, 2006 and options they held on March 31, 2006. No stock appreciation rights were granted during the fiscal year ended March 31, 2006.

					Number of Securities				Value of Unexercised
					Underlying Unexercised				In-the-Money Options at
	Shares				Options at Fiscal Year End				Fiscal Year End(1)
	Acquired on		Value
Name	Exercise		Realized		Exercisable		Unexercisable		Exercisable		Unexercisable
Manuel D. Medina		—		—		41,500		—	$	68,750		—
Jose A. Segrera		—		—		75,000		—	$	159,600		—
John Neville		—		—		25,000		—	$	57,500		—
Jamie Dos Santos		—		—		102,500		—	$	271,100		—
Marvin Wheeler		—		—		65,500		—	$	193,950		—

(1)  Based on a per share price of $8.50, the closing price of the common stock as reported on the American Stock Exchange on March 31, 2006, minus the exercise price of the option, multiplied by the number of shares underlying the option.

Compensation of Directors

      We maintain a policy of compensating our directors using stock option grants and, in the case of service on some committees of our board of directors, payments of cash consideration. Upon their election as a member of our board of directors, each director received options to purchase 10,000 shares of our common stock. Our employee directors receive the same compensation as our non-employee directors. The options granted to our directors vest as follows: one-third of the shares vest as of the date of grant, one-third on the first anniversary of the date of grant, and one-third on the second anniversary of the date of grant. On January 21, 2005, our board of directors approved a one-time grant of additional options to purchase 10,000 shares of our common stock to each of our directors at an exercise price equal to $6.30 per

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share. These options vest 10% for each meeting attended by the respective director during the 18-month period commencing on the date of grant. Any options not vested by the end of this 18-month period are deemed to be forfeited by that director and cancelled. In addition, the Chairman of the audit committee of our board of directors receives annual compensation of $12,000 and each member of our audit committee receives annual compensation of $9,000. The members of this committee also receive $1,000 for each meeting attended. With respect to the compensation committee of our board of directors, the Chairman receives annual compensation of $8,000 and each other member receives annual compensation of $6,000. Each member of this committee receives $1,000 for each meeting attended. We reimburse our directors for all out-of-pocket expenses incurred in the performance of their duties as directors. Aside from the payments described above, we do not pay fees to our directors for attendance at meetings. We entered into an agreement with Joseph Wright, Jr., one of our directors, commencing September 21, 2001, engaging Mr. Wright as an independent consultant. The agreement is for a term of one year after which it renews automatically for successive one-year periods. Either party may terminate the agreement by providing 90 days notice. The agreement provides for an annual compensation of $100,000, payable monthly.

Employment Agreements

      Manuel D. Medina is employed as our Chairman, Chief Executive Officer and President under the terms of an amended and restated employment agreement; the term of which commenced April 28, 2001. The amended and restated agreement is for a term of twelve months and automatically renews for successive one year terms until either party gives written notice of its intention not to renew. The amended and restated agreement provides for an annual base salary of $350,000 and is subject to increases. Pursuant to the terms of his agreement, Mr. Medina is prohibited from competing with us for a one year period following termination of his employment, unless this termination is by us without cause or by him for “good reason” as specified in the employment agreement.

      Jamie Dos Santos has entered into an agreement, commencing November 1, 2002, employing her as our Senior Vice President of Global Initiatives. The agreement is effective until either party gives written notice of its intention to terminate. The agreement provides for an annual base salary of $250,000 and is subject to increases. Pursuant to the terms of her agreement, Ms. Dos Santos is prohibited from competing with us for a one year period following termination of her employment, unless this termination is by us without cause or by her for “good reason” as specified in the employment agreement. In April 2003, Ms. Dos Santos became our Chief Marketing Officer.

      Jose A. Segrera has entered into a one year employment agreement, commencing September 25, 2001, employing him as our Chief Financial Officer. The agreement automatically renews for successive one year terms until either party gives written notice of its intention not to renew. In June 2001, Mr. Segrera’s title was changed to Executive Vice President and Chief Financial Officer. The agreement provides for an annual base salary of $150,000, which has been increased to $200,000, and is subject to further increases. Pursuant to the terms of his agreement, Mr. Segrera is prohibited from competing with us for a one year period following termination of his employment, unless this termination is by us without cause or by him for “good reason” as specified in the employment agreement.

      Marvin Wheeler has entered into an agreement, commencing November 1, 2002, employing him as our Senior Vice President of Operations. The agreement is effective until either party gives written notice of its intention to terminate. The agreement provides for an annual base salary of $175,000, which has been increased to $200,000, and is subject to further increases. Pursuant to the terms of his agreement, Mr. Wheeler is prohibited from competing with us for a one year period following termination of his employment, unless this termination is by us without cause or by his for “good reason” as specified in the employment agreement. In November 2003, Mr. Wheeler became our Chief Operations Officer.

      John Neville has entered into an agreement, commencing April 18, 2005, employing him as our Senior Vice President of Commercial Sales. The agreement is for an indefinite term until either party gives written notice of its intention to terminate. The agreement provides for an annual base salary of $200,000 and is subject to increases pursuant to terms of this agreement. In addition, Mr. Neville is entitled to additional

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compensation equal to 1/2 of one percent of the gross revenue generated from the first year value of all sales of our services that are generated during the term of the employment agreement by Mr. Neville or certain of Mr. Neville’s sales staff identified in the employment agreement. Mr. Neville is prohibited from competing with us for a one year period following termination of his employment, unless this termination is by us without cause or by him for “good reason” as specified in the employment agreement.

      If the employment of either Manuel D. Medina or Jose A. Segrera is terminated without cause by us or by them for “good reason”, each is entitled to continue to receive his annual base salary through the date his employment would have ended under the terms of his agreement, but in no event for more than six months, together with certain other benefits.

      If the employment of Jamie Dos Santos, or Marvin Wheeler is terminated without cause by us or by them for “good reason”, each is entitled to continue to receive his or her annual base salary together with certain other benefits for a period of six months from the date of termination.

      If the employment of John Neville is terminated without cause by us or by them for “good reason”, he is entitled to continue to receive his or her annual base salary together with certain other benefits for a period of three months from the date of termination.

      If the employment of any of Manuel D. Medina, Jamie Dos Santos, Jose A. Segrera, Marvin Wheeler or John Neville is terminated within one year of a change in control, each is entitled to continue to receive a payment equal to the sum of two times his or her annual base salary, incentive compensation, and the value of any fringe benefits plus any accrued incentive compensation through the date of termination and other benefits. The definition of a “change in control” in the applicable employment agreements (except the employment agreement of John Neville) includes the resignation of Manuel D. Medina as both our Chairman and Chief Executive Officer, his death, or his absence from the day to day business affairs of the Company for more than 90 consecutive days due to disability or incapacity.

Compensation Committee Interlocks and Insider Participation

      The following directors served as members of our compensation committee during the 2006 fiscal year: Marvin S. Rosen, Miguel J. Rosenfeld, and Antonio S. Fernandez. No member of the compensation committee is now or ever was an officer or an employee of ours. Manuel D. Medina, our Chairman, President and Chief Executive Officer, serves as a member of the compensation committee of Fusion Telecommunications International, Inc., a public company. Marvin S. Rosen, also currently serves as Chairman of the Board of Fusion Telecommunications.

Indemnification of Officers and Directors

      Our certificate of incorporation and bylaws designate the relative duties and responsibilities of our officers, establish procedures for actions by directors and stockholders and other items. Our amended and restated certificate of incorporation and bylaws also contain indemnification provisions that permit us to indemnify our officers and directors to the maximum extent provided by Delaware law.

      We have entered into indemnification agreements with all of our directors and some of our officers, to provide them with the maximum indemnification allowed under our bylaws and applicable law, including indemnification for all judgments and expenses incurred as the result of any lawsuit in which such person is named as a defendant by reason of being our director, officer or employee, to the extent indemnification is permitted by the laws of Delaware. We believe that the limitation of liability provisions in our amended and restated certificate of incorporation and the indemnification agreements will enhance our ability to continue to attract and retain qualified individuals to serve as directors and officers.

Directors and Officers Liability Insurance

      We have obtained directors’ and officers’ liability insurance with an aggregate liability for the policy year, inclusive of costs of defense, in the amount of $25,000,000.

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Employee Stock Option Plans

      Under our 1995 Stock Option Plan, we have reserved for issuance an aggregate of 50,000 shares of our common stock. As of March 31, 2006, we had granted options to purchase 38,500 shares of common stock pursuant to this plan, of which 26,750 had been exercised and 11,750 are vested but have not been exercised. The 1995 Stock Option Plan expired in February 2005.

      Under our 1996 Stock Option Plan, we have reserved for issuance an aggregate of 1,170,000 shares of common stock, 954,814 of which have been granted. As of March 31, 2006, 670,361 granted options have vested but remain unexercised and 229,877 options have been exercised.

      Under our 2000 Stock Option Plan, we have reserved for issuance an aggregate of 1,500,000 shares of common stock. As of March 31, 2006, we had granted options to purchase 1,239,928 shares of common stock pursuant to this plan, 1,145,203 of which have vested and 2,954 of which have been exercised.

      On August 9, 2005, our board of directors adopted our 2005 Executive Incentive Compensation Plan, which was approved by our shareholders on September 23, 2005. This comprehensive plan superseded and replaced all of our pre-existing stock option plans. Under the 2005 Executive Incentive Compensation Plan, our 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, 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”). The effective date of the 2005 Executive Incentive Compensation Plan was August 9, 2005. Under the 2005 Executive Incentive Compensation Plan, we have reserved for issuance an aggregate of 1,000,000 shares of common stock.

      Shares Available for Awards; Annual Per-Person Limitations. Under the 2005 Executive Incentive Compensation Plan, the total number of shares of Common Stock that may be subject to the granting of Awards under the 2005 Executive Incentive Compensation Plan at any time during the term of the Executive Incentive Compensation Plan is equal to 1,000,000 shares, plus (i) the number of shares with respect to which awards previously granted under the preexisting plans terminate without being exercised, (ii) the number of shares that remain available for future issuance under the preexisting plans, and (iii) the number of shares that are surrendered in payment of any awards or any tax withholding requirements. The 2005 Executive Incentive Compensation Plan limits the number of shares which may be issued pursuant to incentive stock options to 1,000,000 shares.

      In addition, the 2005 Executive Incentive Compensation Plan imposes individual limitations on the amount of some awards in part to comply with Section 162(m) of the Internal Revenue Code. Under these limitations, during any fiscal year the number of options, SARs, restricted shares of common stock, deferred shares of common stock, shares as a bonus or in lieu of other Terremark obligations, and other stock-based awards granted to any one participant may not exceed 500,000 for all types of these awards, subject to adjustment in specified circumstances. The maximum amount that may be paid out as an annual incentive award or other cash award in any fiscal year to any one participant is $1,000,000, and the maximum amount that may be earned as a performance award or other cash award in respect of a performance period by any one participant is $5,000,000.

      Our compensation committee is authorized to adjust the above-described limitations and is authorized to adjust outstanding awards (including adjustments to exercise prices of options and other affected terms of awards) in the event that a dividend or other distribution (whether in cash, shares of common stock or other property), recapitalization, forward or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, share exchange or other similar corporate transaction or event affects the common stock so that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of participants. The compensation committee is also authorized to adjust performance conditions and other terms of awards in response to these kinds of events or in response to changes in applicable laws, regulations or accounting principles.

      Eligibility. The persons eligible to receive awards under the 2005 Executive Incentive Compensation Plan are the officers, directors, employees and independent contractors of Terremark Worldwide, Inc. and its

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subsidiaries. An employee on leave of absence may be considered as still in the employ of ours or our subsidiary for purposes of eligibility for participation in the 2005 Executive Incentive Compensation Plan. As of March 31, 2006, approximately 250 persons were eligible to participate in the 2005 Executive Incentive Compensation Plan.

      On March 23, 2006, our compensation committee approved the vesting, effective as of March 31, 2006, of all unvested stock options previously granted under our stock option and executive incentive 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 460,000 shares became immediately exercisable. All other terms of these options remain unchanged. Our compensation committee accelerated the vesting of options for the following directors and executive officers:

	Accelerated		Range of
Directors	Shares		Strike Prices
Fernando Fernandez-Tapias		9,000	$	6.30
Rodolfo A. Ruiz		8,400	$	6.30 — 7.10
Antonio S. Fernandez		4,000	$	6.30
Marvin S. Rosen		4,000	$	6.30
Joseph R. Wright, Jr.		3,000	$	6.30
Arthur J. Money		5,400	$	6.00 — 6.30
Guillermo Amore		1,000	$	6.30
Miguel J. Rosenfeld		1,000	$	6.30
Timothy Elwes		1,000	$	6.30
		36,800

	Accelerated		Range of
Section 16 Officers	Shares		Strike Prices
John S. Neville		25,000	$	6.20
Jamie Dos Santos		13,333	$	3.30 — 6.50
Marvin Wheeler		13,333	$	3.30 — 6.50
Jose A. Segrera		10,000	$	3.30 — 6.50
Manuel D. Medina		4,910	$	6.00 — 6.30
		66,576

      We will adopt Financial Accounting Standards Board Statement No. 123 (revised 2004) (“SFAS 123R”), “Share-Based Payment” as of April 1, 2006, and will then recognize compensation expense prospectively for all future stock option grants. The decision of our 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 fiscal quarter ending June 30, 2006 and the administrative burden associated with the adoption of SFAS 123R. We have recognized approximately $756,000 (before tax) of compensation expense during the quarter ended March 31, 2006 as a result of the acceleration of the vesting of the options, but will not be required to recognize future compensation expenses for the accelerated options under FAS 123R unless we make modifications to the options, which is not anticipated. The future compensation expense that will be avoided, based on our implementation date for SFAS 123R on April 1, 2006, is approximately $1,500,000, $900,000, and $170,000 in the fiscal years ended March 31, 2007, 2008, and 2009, respectively. We expect future stock-based compensation grants to have a significant impact on our results of operations.

      Unless sooner terminated by the board of directors, the 1995 Stock Option Plan, the 1996 Stock Option Plan, the 2000 Stock Option Plan and the 2005 Executive Incentive Compensation Plan have terminated or

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will terminate on February 8, 2005, May 7, 2006, September 21, 2010 and August 9, 2015, respectively, the tenth anniversary date of the effectiveness of each stock option plan.

Audit Committee

      The board of directors has determined that each of the members of our audit committee satisfies the financial literacy and experience requirements of the AMEX and the rules of the Securities and Exchange Commission.

Code of Ethics

      We maintain a Code of Ethics that is applicable to our Chief Executive Officer and Senior Financial Officers. This code of ethics requires continued observance of high ethical standards such as honesty, integrity and compliance with the law in the conduct of our business. Violations under our code of ethics must be reported to our audit committee. A copy of our code of ethics may be requested in print by writing to the Secretary at Terremark Worldwide, Inc., 2601 S. Bayshore Drive, Miami, Florida 33133. In addition, our code of ethics is available on our website, www.terremark.com under “Investor Relations.” We intend to post on our website amendments to or waivers from our code of ethics.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

      The following table sets forth information regarding the beneficial ownership of shares of our capital stock as of March 31, 2006, the record date for the meeting, by:

•  each of our directors;

•  each of our executive officers;

•  all of our directors and executive officers as a group; and

•  each person known by us to beneficially own more than 5% of our outstanding common stock, series H convertible preferred stock or series I convertible preferred stock.

      As of March 31, 2006, 44,490,352 shares of our common stock, 294 shares of our series H convertible preferred stock and 339 shares of our series I convertible preferred stock were outstanding. As of March 31, 2006, the outstanding shares of our series H and series I convertible preferred stock were convertible into 29,400 and 1,130,000 shares of our common stock, respectively. On June 1, 2006, we received a notice from the holder of all 294 shares of our series H convertible preferred stock notifying us that the holder had exercised its right to require us to redeem all of these shares. We expect to redeem these shares sometime in the second quarter of our 2007 fiscal year.

      For purposes of the following table, a person is deemed to be the beneficial owner of securities that can be acquired by the person within 60 days from the record date for the meeting upon the exercise of warrants or options or upon the conversion of debentures or preferred shares. Each beneficial owner’s percentage is determined by assuming that options, warrants or conversion rights that are held by the person, but not those held by any other person, and which are exercisable within 60 days from the record date of the meeting have been exercised. Unless otherwise indicated, we believe that all persons named in this table have sole voting power and investment power over all the shares beneficially owned by them. Unless otherwise indicated, the address of each person listed in the following table is c/o Terremark Worldwide, Inc., 2601 South Bayshore

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Drive, Miami, Florida 33133. All share amounts in the following table have been adjusted to reflect the reverse stock split:

	Amount and Nature of
Name and Address of Beneficial Owner	Beneficial Ownership(1)			Percent of Class (%)
Common Stock:
Manuel D. Medina		3,850,539	(2)		7.6	%
Joseph R. Wright, Jr.		542,309	(3)		1.1	%
Guillermo Amore		451,041	(4)		*
Miguel J. Rosenfeld		304,876	(5)		*
Timothy Elwes		279,000	(6)		*
Marvin S. Rosen		136,134	(7)		*
Jaime Dos Santos		102,500	(8)		*
Antonio S. Fernandez		90,158	(9)		*
Jose A. Segrera		76,000	(8)		*
Marvin Wheeler		65,500	(8)		*
John Neville		41,500	(8)		*
Fernando Fernandez-Tapias		31,500	(8)		*
Arthur L. Money		31,500	(8)		*
Rodolfo A. Ruiz		31,500	(8)		*
Ocean Bank		2,000,000	(10)		4.0	%
Sun Equity Assets Limited		5,902,234	(11)		11.7	%
All directors and executive officers as a group (14 persons)		6,034,057			11.9	%
Series H Preferred Stock:
One Vision Worldwide, LLC		294	(12)		*
Series I Preferred Stock:
Louisa Stude Sarofim 2006 Terremark Grantor Retained Annuity Trust I		80	(13)		*
Guazapa Properties, Inc.		48	(14)		*
CRG, LLC		100	(15)		*
Palmetto, S.A.		20	(16)		*
Promociones Bursatiles, S.A.		28	(17)		*

* Represents less than 1.0%.

(1)

For purposes of this table, beneficial ownership is computed pursuant to Rule 1 3d-3 under the Exchange Act; the inclusion of shares as beneficially owned should not be construed as an admission that such shares are beneficially owned for purposes of the Exchange Act. Under the rules of the Securities and Exchange Commission, a person is deemed to be a “beneficial owner” of a security he or she has or shares the power to (i) vote, (ii) direct the voting of such security or (iii) dispose of or direct the disposition of such security. Accordingly, more than one person may be deemed to be a beneficial owner of the same security.

(2)

Includes 41,500 shares of our common stock underlying options. As reported in Mr. Medina’s Schedule 1 3D, and any amendments thereto, filed with the Securities and Exchange Commission on October 4, 2002, these include 702,168 shares as to which Mr. Medina has sole voting power but does not have dispositive power. Includes 225,523 shares of our common stock which are held of record by Communication Investors Group, an entity in which Mr. Medina is a partner and holds a 50% interest. See “Shareholders Agreement” below.

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(3)	Includes 160,500 shares of our common stock underlying options. Does not include 10,000 shares held in trust for the benefit of Mr. Wright’s grandchildren with respect to which Mr. Wright disclaims beneficial ownership.
(4)	Includes 41,500 shares underlying options, 17,500 shares owned by Mr. Amore’s sibling, over which Mr. Amore has investment control. Also includes (i) 104,393 shares, (ii) 26,667 shares which may be acquired upon the conversion of shares of series I preferred stock and (iii) 5,600 shares underlying warrants, all of which are owned by Margui Family Partners, Ltd. with respect to which Mr. Amore disclaims beneficial ownership except to the extent of his pecuniary interest therein.
(5)	Includes 41,500 shares of our common stock underlying options and 123,412 shares held indirectly by Mr. Rosenfeld. Does not include 33,877 shares held by Mr. Rosenfeld’s children, with respect to which Mr. Rosenfeld disclaims beneficial ownership.
(6)	Includes 41,500 shares of our common stock underlying options.
(7)	Includes 45,000 shares of our common stock underlying options.
(8)	Represents shares of our common stock underlying options.
(9)	Includes 31,500 shares of our common stock underlying options, 6,667 shares which may be acquired upon the conversion of Series I preferred stock and 1,400 shares underlying warrants.

(10)	The address of the beneficial owner is 780 N.W. 42nd Avenue, Miami, Florida 33126.
(11)	The address of the beneficial owner is Georgetown, Tortola, B.V.I. Francis Lee is the natural person deemed to be the beneficial owner of the shares held by Sun Equity Assets Limited. See “Shareholders Agreement” below.
(12)	Represents 294 shares of series H convertible preferred stock which are convertible into, and have voting rights equivalent to, 29,400 shares of our common stock.
(13)	Represents 80 shares of series I convertible preferred stock which are convertible into, and have voting rights equivalent to, 266,667 shares of our common stock.
(14)	Represents 48 shares of series I convertible preferred stock which are convertible into, and have voting rights equivalent to, 160,000 shares of our common stock. Heinrich Adolf Hans Herweg is the natural person with voting and investment control over the shares.
(15)	Represents 100 shares of series I convertible preferred stock which are convertible into, and have voting rights equivalent to, 333,333 shares of our common stock. Christian Altaba is the natural person with voting and investment control over the shares.
(16)	Represents 20 shares of series I convertible preferred stock which are convertible into, and have voting rights equivalent to, 66,667 shares of our common stock. Antonio De Roguery is the natural person with voting and investment control over the shares.
(17)	Represents 28 shares of series I convertible preferred stock which are convertible into, and have voting rights equivalent to, 93,333 shares of our common stock. Roberto Solis Monsato is the natural person with voting and investment control over the shares.

Shareholders Agreement

      Under the terms of a Shareholders Agreement, dated as of May 15, 2000, Vistagreen Holdings (Bahamas), Ltd., predecessor-in-interest to Sun Equity Assets Limited, Moraine Investments, Inc., predecessor-in-interest to Sun Equity Assets Limited, and Paradise Stream (Bahamas) Limited, on the one hand, and TCO Company Limited, Manuel D. Medina, Willy Bermello and ATTU Services, Inc., the shareholders party to the Agreement have agreed to vote in favor of the election of two nominees of Vistagreen (now Sun Equity Assets Limited) to our board of directors and have further agreed that one of these nominees, as designated by Vistagreen, will be elected to the executive committee of our board of directors. Vistagreen has nominated Timothy Elwes to serve on our board of directors. We do not currently have an executive committee.

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Equity Compensation Plan Information

      This table summarizes share and exercise price information about our equity compensation plans as of March 31, 2006.

	Number of Securities
	to be Issued Upon		Weighted Average		Number of securities
	Exercise of		Exercise Price of		Available for Future
	Outstanding Options,		Outstanding Options,		Issuance Under Equity
Plan Category	Warrants and Rights		Warrants and Rights		Compensation Plans
Equity compensation plans approved by security holders		2,279,700	$	11.27		1,483,258
Equity compensation plans not approved by security holders		—	$	—		—

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      We have entered into indemnification agreements with all of our directors and some of our officers, to provide them with the maximum indemnification allowed under our bylaws and applicable law, including indemnification for all judgments and expenses incurred as the result of any lawsuit in which such person is named as a defendant by reason of being one of our directors, officers or employees, to the extent such indemnification is permitted by the laws of Delaware. We believe that the limitation of liability provisions in our Amended and Restated Certificate of Incorporation and the indemnification agreements enhance our ability to continue to attract and retain qualified individuals to serve as directors and officers.

      On June 13, 2006, we entered into an employment letter agreement with Arthur J. Money, a member of our board of directors. Under the terms of this letter agreement, Mr. Money agreed to serve as Director — Government, Military and Homeland Security Affairs. The employment letter expires on January 31, 2007; however, it continues in effect unless terminated by us or him on 48 hours written notice for terminations with cause or on 90 days written notice for terminations without cause. Mr. Money’s compensation under the employment letter consists of $5,000 per month and a grant of 15,000 shares of our common stock issued under the terms of our 2005 Executive Incentive Compensation Plan. Notwithstanding his title, Mr. Money is not considered an officer of Terremark, and the employment letter expressly provides he is not granted the ability to bind Terremark to any agreement with a third party or to incur any obligation or liability on behalf of Terremark.

      On May 26, 2005, we issued 111,017 shares of our common stock to Joseph R. Wright, our Vice Chairman, in connection with the exercise of certain of his options at $3.50 per share.

      We entered into an agreement with Joseph Wright, Jr., one of our directors, commencing September 21, 2001, engaging Mr. Wright as an independent consultant. The agreement is for a term of one year after which it renews automatically for successive one-year periods. Either party may terminate the agreement by providing 90 days’ notice. The agreement provides for an annual compensation of $100,000, payable monthly.

      We have also entered into a consulting agreement with Guillermo Amore, a member of our board of directors, engaging him as an independent consultant. Mr. Amore’s agreement expired in 2005 and provided for an annual compensation of $250,000, payable monthly.

      On May 2003, we entered into a subcontractor agreement with Fusion Telecommunications International, Inc. to provide Internet protocol services under our agreement with the Diplomatic Telecommunications Service — Program Office for 16 U.S. embassies and consulates in Asia and the Middle East with another one scheduled to be installed. Fusion’s Chief Executive Officer, Marvin Rosen, is one of our directors. In addition, Fusion’s former Chairman, Joel Schleicher, and Kenneth Starr, one of Fusion’s other directors, formerly served on our board. Manuel Medina, our Chairman, President and Chief Executive Officer, also sits on Fusion’s board of directors and Joseph R. Wright, Jr., another director of ours, formerly served on Fusion’s board of directors. During the year ended March 31, 2006, we purchased approximately $1,300,000 in services from Fusion.

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      Included in interest income for the year ended March 31, 2005 is approximately $50,000 from a $5.0 million receivable from Mr. Medina. The loan, plus accrued interest, was repaid in September 2004 through the tendering of approximately 770,000 shares of Terremark common stock by Mr. Medina.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

PricewaterhouseCoopers LLP

      On October 5, 2005, our audit committee unanimously determined to dismiss PwC as our independent registered certified public accounting firm. On October 5, 2005, we informed PwC representatives of their dismissal, which became effective as of the date PwC completed its procedures on our unaudited interim financial statements as of September 30, 2005 and for the three and six month periods then ended and the quarterly report on Form 10-Q in which such unaudited interim financial statements were included. These procedures were completed on November 9, 2005.

      The reports of PwC on our financial statements as of and for the years ended March 31, 2004 and 2005 did not contain any adverse opinion or disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope or accounting principle. During the fiscal years ended March 31, 2004 and 2005 and through October 5, 2005, there were no disagreements with PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of PwC, would have caused it to make reference thereto in its reports on the financial statements for such years.

      During the years ended March 31, 2004 and 2005, and through October 5, 2005, there have been no “reportable events” (as defined in Item 304(a)(1)(v) of Regulation S-K), except as described below:

•  In accordance with Section 404 of the Sarbanes-Oxley Act of 2002, we completed our assessment of the effectiveness of its internal control over financial reporting and concluded that our internal control over financial reporting was not effective as of March 31, 2005 due to material weaknesses in our internal control related to (i) the restriction of access to key financial applications and data and controls over the custody and processing of disbursements and of customer payments received by mail, and (ii) the billing function to ensure that invoices capture all services delivered to customers and that such services are invoiced and revenue is recorded accurately and timely, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). More details on these two material weaknesses in internal control over financial reporting and management’s plans to remediate these weaknesses are discussed in Item 9A of our annual report on Form 10-K (Amendment No. 2), which was filed with the U.S. Securities and Exchange Commission on August 17, 2005, and in Item 4 of our quarterly report on Form 10-Q for the quarter ended September 30, 2005. In connection with the previously described restatement of our consolidated financial statements, we determined we would restate our report on internal controls over financial reporting as of March 31, 2005 to include this additional material weakness.

•  On November 9, 2005, the Company filed a Current Report on Form 8-K, indicating it would restate its Annual Report on Form 10-K for the year ended March 31, 2005 and its Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2004. In connection with this restatement, management determined that the following material weakness also existed as of September 30, 2005: The Company did not maintain effective controls over the accounting for and calculation of earnings per share. More details on this restatement and the additional material weakness in internal control over financial reporting can be found in Item 4.02(a) of the Company’s Current Report on Form 8-K, which was filed with the U.S. Securities and Exchange Commission on November 9, 2005, and in Item 4 of the Company’s Form 10-Q for the quarter ended September 30, 2005.

•  As further discussed in Item 4 of our quarterly report on Form 10-Q for the quarter ended December 31, 2004, the failure of certain of our internal controls to identify certain adjustments that

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were required to be recorded within our quarterly report on Form 10-Q for the quarter ended June 30, 2004 and the fact that certain further adjustments to our calculations of the value of embedded derivatives, which necessitated the filing of an amendment to our quarterly report on Form 10-Q for the quarter ended June 30, 2004, led our management to conclude that a “material weakness” existed in our internal controls with respect to these matters as of June 30, 2004.

Management of the Company believes that this material weakness has been remediated as of March 31, 2005.

      We were billed an aggregate of $1,250,000 by PwC for the fiscal year ended March 31, 2005 and an aggregate of $366,000 for the six months ended September 30, 2005 as follows:

Audit Fees

      We were billed $910,000 by PwC for professional services rendered for the audit of our annual financial statements for the fiscal year ended March 31, 2005 and $361,000 for the six months ended September 30, 2005, and the reviews of the financial statements included in our filings on Forms 10-Q for those fiscal years.

Audit Related Fees

      We were billed $338,000 by PwC for audit related services, other than the audit and review services described above, for the fiscal year ended March 31, 2005 and $5,000 for the six months ended September 30, 2005. Audit related services provided to us consist of work related consents provided in connection with our registration statement and for the preparation of a comfort letter in the year ended March 31, 2005.

Tax Fees

      PwC did not provide any Tax Services, other than the audit and review services described above, for the fiscal year ended March 31, 2005 and the six months ended September 30, 2005.

All Other Fees

      PwC did not provide any professional services, other than the audit and review services described above, for the fiscal year ended March 31, 2005 and the six months ended September 30, 2005. PwC did not provide any services related to financial information systems design and implementation during the fiscal year ended March 31, 2005 and the six months ended September 30, 2005.

KPMG LLP

      Our audit committee solicited proposals from four major accounting firms and conducted an evaluation in connection with the selection of our independent auditor. On October 5, 2005, our audit committee notified KPMG LLP (KPMG) that, upon dismissal of PwC, KPMG would be appointed as our independent registered public accounting firm.

      During the fiscal years ended March 31, 2004 and 2005 and through October 5, 2005, neither us nor anyone acting on our behalf consulted with KPMG regarding either (i) the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements or (ii) any matter that was either the subject of a disagreement (as such term is defined in Item 304(a)(1)(iv) of Regulation S-K), or a reportable event (as such term is described in Item 304(a)(1)(v) of Regulation S-K).

      Since November 9, 2005, KPMG LLP (KPMG) has served as our independent registered certified public accounting firm.

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      We were billed an aggregate of $806,000 by KPMG for the fiscal year ended March 31, 2006 as follows:

Audit Fees

      KPMG’s fees totaled $970,000 for professional services rendered for the audit of our annual financial statements for the fiscal year ended March 31, 2006, and the reviews of the financial statements included in our filings on Forms 10-Q for those fiscal years.

Tax Fees

      KPMG did not provide any Tax Services, other than the audit and review services described above, for the fiscal year ended March 31, 2006.

All Other Fees

      KPMG did not provide any professional services, other than the audit and review services described above, for the fiscal year ended March 31, 2006. KPMG did not provide any services related to financial information systems design and implementation during the fiscal year ended March 31, 2006.

Audit Committee Approval

      Our audit committee pre-approves all services provided to us by KPMG.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS.

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

      1. Financial Statements

•  Report of Independent Registered Certified Public Accounting Firm on the Financial Statements — KPMG LLP.

•  Report of Independent Registered Certified Public Accounting Firm on Internal Control Over Financial Reporting — KPMG LLP.

•  Report of Independent Registered Certified Public Accounting Firm on the Financial Statements — PricewaterhouseCoopers LLP.

•  Consolidated Balance Sheets as of March 31, 2006 and 2005.

•  Consolidated Statements of Operations for the Years Ended March 31, 2006, 2005 and 2004.

•  Consolidated Statement of Changes in Stockholders’ Equity (Deficit) for the Three Year Period Ended March 31, 2006.

•  Consolidated Statements of Cash Flows for the Years Ended March 31, 2006, 2005 and 2004.

•  Notes to Consolidated Financial Statements.

      2. Financial Statement Schedules

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

      3. Exhibits

Exhibit
Number			Exhibit Description
	1	.1	Form of Underwriting Agreement related to the Company’s offering of common stock on March 14, 2005 (previously filed as an exhibit to the Company’s registration statement filed on February 3, 2005).
	3	.1	Certificate of Merger of Terremark Holdings, Inc. with and into AmTec, Inc. (previously filed as an exhibit to the Company’s Registration Statement on Form S-3 filed on May 15, 2000).
	3	.2	Restated Certificate of Incorporation of the Company (previously filed as an exhibit to the Company’s Registration Statement on Form S-3 filed on May 15, 2000).
	3	.3	Certificate of Amendment to Certificate of Incorporation of the Company (previously filed as an exhibit to the Company’s Registration Statement on Form S-1 filed on December 21, 2004).
	3	.4	Restated Bylaws of the Company (previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed on November 14, 2002).
	3	.5	Certificate of Designations of Preferences of Series H Convertible Preferred Stock of the Company (previously filed as exhibit 3.5 to the Company’s Annual Report on Form 10-K filed on July 16, 2001).
	3	.6	Certificate of Designations of Preferences of Series I Convertible Preferred Stock of the Company (previously filed as an exhibit to the Company’s Registration Statement on Form S-3/A filed on March 17, 2004).
	3	.8	Certificate of Amendment to Certificate of Incorporation of the Company (previously filed as an exhibit to the Company’s current report on Form 8-K filed on May 18, 2005).
	4	.1	Specimen Stock Certificate (previously filed as exhibit to the Company’s current report on Form 8-K filed on May 18, 2005).

56

Exhibit
Number			Exhibit Description
	4	.4	Form of Warrant for the Purchase of Common Stock (previously filed as exhibit 4.1 to the Company’s Current Report on Form 8-K filed on April 15, 2003)
	4	.5	Indenture dated June 14, 2004 including form of 9% Senior Convertible Note due 2009 (previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed on August 9, 2004)
	10	.1	1995 Stock Option Plan (previously filed as part of the Company’s Transition Report on Form 10-KSB for the transition period from October 1, 1994 to March 31, 1995)+
	10	.2	1996 Stock Option Plan (previously filed as part of the Company’s Transition Report on Form 10-KSB for the transition period from October 1, 1994 to March 31, 1995)+
	10	.3	Form of Indemnification Agreement for directors and officers of the Company (previously filed as an exhibit to the Company’s Registration Statement on Form S-3, as amended, filed on March 11, 2003)+#
	10	.4	Employment Agreement with Manuel Medina (previously filed as exhibit 10.6 to the Company’s Annual Report on Form 10-K filed on July 16, 2001)+#
	10	.5	Amendment to Employment Agreement with Manuel Medina (previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed on November 14, 2001)+#
	10	.7	Net Premises Lease by and between Rainbow Property Management, LLC and Coloconnection, Inc. (previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on April 15, 2003)
	10	.13	Non-qualified Stock Option Agreement with Brian K. Goodkind to purchase 127,821 shares of the Company’s common stock (previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2003)+#
	10	.14	Non-qualified Stock Option Agreement with Brian K. Goodkind to purchase 140,680 shares of the Company’s common stock (previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2003)+#
	10	.15	First Amendment to the Non-qualified Stock Option Agreement with Brian K. Goodkind to purchase 200,000 shares of the Company’s common stock (previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2003)+#
	10	.16	First Amendment to the Non-qualified Stock Option Agreement with Brian K. Goodkind to purchase 115,000 shares of the Company’s common stock (previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2003)+#
	10	.17	Amended and restated 2000 Stock Option Plan (previously filed as an exhibit to the Company’s Registration Statement on Form S-8 filed on August 19, 2004)+
	10	.18	2000 Directors’ Stock Option Plan (previously filed as an exhibit to the Company’s Registration Statement on Form S-8 filed on August 19, 2002)+
	10	.19	Agreement between Fundacão De Amparo A Pesquisa Do Estado De Sao Paulo — FAPESP and Terremark Latin America (Brazil) Ltda. (previously filed as an exhibit to the Company’s Registration Statement on Form S-3/A filed on December 22, 2003)
	10	.20	Employment Agreement with Jose A. Segrera dated September 8, 2001 (previously filed as an exhibit to the Company’s Annual Report on Form 10-K filed June 30, 2003)+#
	10	.23	Employment Agreement with Jamie Dos Santos dated November 1, 2002 (previously filed as an exhibit to the Company’s Annual Report on Form 10-K filed June 14, 2004)+#
	10	.24	Employment Agreement with Marvin Wheeler dated November 1, 2002 (previously filed as an exhibit to the Company’s Annual Report on Form 10-K filed June 14, 2004)+#
	10	.26	Loan Agreement dated as of December 31, 2004 (the “Loan Agreement”), by and among Technology Center of the Americas, LLC, as Borrower, Citigroup Global Markets Realty Corp., as Agent and each Lender signatory thereto (previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on January 6, 2005)
	10	.27	Form of Warrant Certificate of Terremark Worldwide, Inc. issued to Citigroup Global Markets Realty Corp. (previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on January 6, 2005)

57

Exhibit
Number			Exhibit Description
	10	.28	Purchase Agreement dated as of December 31, 2004, among Terremark Worldwide, Inc., as Issuer, the guarantors named therein, FMP Agency Services, LLC, as agent, and each of the purchasers named therein (previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on January 6, 2005)
	10	.29	Security Agreement dated as of December 31, 2004, by Terremark Worldwide, Inc., as Issuer, the guarantors named therein and FMP Agency Services, LLC, as Agent (previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on January 6, 2005)
	10	.30	Registration Rights Agreement dated as of December 31, 2004 among Terremark Worldwide, Inc. and Falcon Mezzanine Partners, LP, Stichting Pensioenfonds ABP and Stichting Pensioenfonds Voor De Gezondheid, Geestelijke En Maatschappelijke Belangen (the “Purchasers”) (previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on January 6, 2005)
	10	.31	Form of Warrant Certificate of Terremark Worldwide, Inc. issued to the Purchasers (previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on January 6, 2005)
	10	.32	Form of Note of Terremark Worldwide, Inc. issued to the Purchasers (previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on January 6, 2005)
	10	.33	Guaranty of Nonrecourse Obligations executed by the Company in favor of Citigroup Global Markets Realty Corp., as agent, for the benefit of the lenders to the Loan Agreement (previously filed as an exhibit to the Company’s Registration Statement on Form S-1 filed on February 3, 2005).
	10	.34	Employment Agreement with John Neville dated April 18, 2005 (previously filed as an exhibit to the Company’s Annual Report on Form 10-K filed June 29, 2005).+#
	10	.35	Dedigate Stock Purchase Agreement (previously filed as an exhibit to the Company’s Quarter Report on Form 10-Q filed August 9, 2005).
	10	.36	Dedigate Registration Rights Agreement (previously filed as an exhibit to the Company’s Quarter Report on Form 10-Q filed August 9, 2005).
	10	.37	2005 Executive Incentive Compensation Plan (previously filed as an exhibit to the Company’s Definitive Proxy Statement relating to the Company’s 2005 Annual Meeting of Stockholders).+
	10	.38	Amended and Restated Employment Letter Agreement between Terremark Worldwide, Inc. and Arthur J. Money*+#
	21	.1	Subsidiaries of the Company*
	23	.1	Consent of PricewaterhouseCoopers LLP*
	23	.2	Consent of KPMG LLP*
	31	.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a)*
	31	.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a)*
	32	.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
	32	.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

*	Filed herewith
+	Compensation Plan or Arrangement
#	Management Contract

58

SIGNATURES

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

TERREMARK WORLDWIDE, INC.

By:  /s/ MANUEL D. MEDINA

Manuel D. Medina

Chairman of the Board, President and

Chief Executive Officer

(Principal Executive Officer)

Date: June 14, 2006

By: /s/ JOSE A. SEGRERA

Jose A. Segrera

Executive Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

Date: June 14, 2006

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

Signature	Title	Date
/s/ MANUEL D. MEDINA Manuel D. Medina	Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)	June 14, 2006
/s/ GUILLERMO AMORE Guillermo Amore	Director	June 14, 2006
/s/ TIMOTHY ELWES Timothy Elwes	Director	June 14, 2006
/s/ ANTONIO S. FERNANDEZ Antonio S. Fernandez	Director	June 14, 2006
/s/ FERNANDO FERNANDEZ-TAPIAS Fernando Fernandez-Tapias	Director	June 14, 2006
/s/ HON. ARTHUR L. MONEY Hon. Arthur L. Money	Director	June 14, 2006
/s/ MARVIN S. ROSEN Marvin S. Rosen	Director	June 14, 2006
/s/ MIGUEL J. ROSENFELD Miguel J. Rosenfeld	Director	June 14, 2006
/s/ RODOLFO A. RUIZ Rodolfo A. Ruiz	Director	June 14, 2006
/s/ JOSEPH R. WRIGHT, JR. Joseph R. Wright, Jr.	Director	June 14, 2006
/s/ JOSE A. SEGRERA Jose A. Segrera	Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)	June 14, 2006

59

EXHIBIT SCHEDULE

Exhibit
Number			Description
	10	.38	Amended and Restated Employment Letter Agreement between Terremark Worldwide, Inc. and Arthur J. Money
	21	.1	Subsidiaries of the Company*
	23	.1	Consent of PricewaterhouseCoopers LLP*
	23	.2	Consent of KPMG LLP*
	31	.1	Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
	31	.2	Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
	32	.1	Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
	32	.2	Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

*  Filed herewith.

60

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

      We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that Terremark Worldwide, Inc. maintained effective internal control over financial reporting as of March 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Terremark Worldwide, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

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

      A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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

      In our opinion, management’s assessment that Terremark Worldwide, Inc. maintained effective internal control over financial reporting as of March 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, Terremark Worldwide, Inc., maintained, in all material respects, effective internal control over financial reporting as of March 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

      In August 2005, Terremark Worldwide, Inc. acquired Dedigate, N.V., and management excluded from its assessment of the effectiveness of Terremark Worldwide, Inc.’s internal control over financial reporting as of March 31, 2006, Dedigate, N.V.’s internal control over financial reporting associated with total assets of $11,232,360 and total revenues of $6,491,132 included in the consolidated financial statements of Terremark Worldwide, Inc. and subsidiaries as of and for the year ended March 31, 2006. Our audit of internal control over financial reporting of Terremark Worldwide, Inc. also excluded an evaluation of the internal control over financial reporting of Dedigate, N.V.

      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Terremark Worldwide, Inc. and subsidiaries as of March 31, 2006, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended March 31, 2006, and our report dated June 14, 2006 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

June 14, 2006

Miami, Florida

Certified Public Accountants

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

      We have audited the accompanying consolidated balance sheet of Terremark Worldwide, Inc. and subsidiaries as of March 31, 2006, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended March 31, 2006. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

      We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Terremark Worldwide, Inc. and subsidiaries as of March 31, 2006, and the results of their operations and their cash flows for the year ended March 31, 2006, in conformity with U.S. generally accepted accounting principles.

      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Terremark Worldwide, Inc.’s internal control over financial reporting as of March 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated June 14, 2006 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

/s/ KPMG LLP

June 14, 2006

Miami, Florida

Certified Public Accountants

F-2

REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

To the Board of Directors and shareholders of Terremark Worldwide, Inc.:

      In our opinion, the accompanying consolidated balance sheet as of March 31, 2005 and the related consolidated statements of operations, of changes in stockholder’s equity (deficit) and of cash flows for each of the two years in the period ended March 31, 2005 present fairly, in all material respects, the financial position of Terremark Worldwide, Inc. and its subsidiaries at March 31, 2005, and the results of their operations and their cash flows for each of the two years in the period ended March 31, 2005, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Miami, Florida

August 4, 2005, except for the restatement described in Note 2 included in the

2005 Form 10-K (Amendment No. 3) (not separately presented herein) to correct

annual disclosures of earnings per share as described in Note 2 to which the

date is December 15, 2005

F-3

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		March 31,
		2006			2005
ASSETS
Current assets:
Cash and cash equivalents		$	20,401,934		$	44,001,144
Restricted cash			474,073			2,185,321
Accounts receivable, net of allowance for doubtful accounts of $200,000 each year			10,951,827			4,388,889
Current portion of capital lease receivable			2,507,029			2,280,000
Prepaid and other current assets			1,840,075			942,575
	Total current assets		36,174,938			53,797,929
Restricted cash			3,814,842			5,641,531
Property and equipment, net of accumulated depreciation and amortization of $26,331,368 and $18,110,516			129,893,318			123,406,321
Debt issuance costs, net of accumulated amortization of $2,810,403 and $1,007,734			6,963,232			8,797,296
Other assets			3,414,483			1,182,716
Capital lease receivable, net of current portion			4,004,449			6,080,001
Intangibles, net of accumulated amortization of $520,000			3,680,000			—
Goodwill			16,771,189			9,999,870
	Total assets	$	204,716,451		$	208,905,664
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of debt and capital lease obligations		$	1,890,108		$	6,219,974
Accounts payable and accrued expenses			19,122,700			10,067,016
Interest payable			3,833,288			2,680,882
Series H redeemable convertible preferred stock: $.001 par value, 294 shares issued and outstanding, at liquidation value			646,693			—
	Total current liabilities		25,492,789			18,967,872
Mortgage payable, less current portion			45,795,552			46,034,024
Convertible debt			59,102,452			53,972,558
Derivatives embedded with convertible debt, at estimated fair value			24,960,750			20,199,750
Notes payable, less current portion			25,614,140			23,664,142
Deferred rent and other liabilities			3,267,481			2,817,435
Capital lease obligations, less current portion			852,311			434,441
Deferred revenue			5,794,659			1,994,598
Series H redeemable convertible preferred stock: $.001 par value, 294 shares issued and outstanding, at liquidation value			—			616,705
	Total liabilities		190,880,134			168,701,525
Minority interest			—			28,090
Commitments and contingencies			—			—
Stockholder’s equity:
Series I convertible preferred stock: $.001 par value, 339 and 383 shares issued and outstanding (liquidation value of approximately $8.6 million and $9.8 million)			1			1
Common stock: $.001 par value, 100,000,000 shares authorized; 44,490,352 and 42,587,321 shares issued			44,490			42,587
Common stock warrants			13,251,660			13,599,704
Common stock options			582,004			1,538,260
Additional paid-in capital			291,607,528			279,063,085
Accumulated deficit			(283,823,243	)		(246,674,069	)
Accumulated other comprehensive loss			(317,756	)		(172,882	)
Treasury stock: 865,202 shares			(7,220,637	)		(7,220,637	)
Note receivable			(287,730	)		—
	Total stockholder’s equity		13,836,317			40,176,049
	Total liabilities and stockholder’s equity	$	204,716,451		$	208,905,664

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

F-4

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

				For the Year Ended March 31,
				2006			2005			2004
Revenues
	Data center — services			$	62,529,282		$	34,985,343		$	17,034,377
	Data center — technology infrastructure build-out				—			11,832,745			—
	Construction contracts and fees				—			1,329,526			1,179,362
		Operating revenues			62,529,282			48,147,614			18,213,739
Expenses
	Data center operations — services, excluding depreciation				38,823,880			26,377,861			16,413,021
	Data center operations — technology infrastructure build-out				—			9,711,022			—
	Construction contract expenses, excluding depreciation				—			809,372			918,022
	General and administrative				15,624,516			13,243,073			13,336,400
	Sales and marketing				8,548,049			5,402,886			3,424,411
	Depreciation and amortization				8,678,168			5,697,071			4,698,292
	Impairment of long-lived assets and goodwill				—			813,073			—
		Operating expenses			71,674,613			62,054,358			38,790,146
			Loss from operations		(9,145,331	)		(13,906,744	)		(20,576,407	)
Other (expenses) income
	Change in fair value of derivatives embedded within convertible debt				(4,761,000	)		15,283,500			—
	Gain on debt restructuring and extinguishment, net				—			3,420,956			8,475,000
	Interest expense				(25,048,519	)		(15,493,610	)		(14,624,922	)
	Interest income				1,742,609			666,286			131,548
	Gain on sale of asset				499,388			—			—
	Other, net				(436,321	)		170,260			4,104,204
		Total other (expenses) income			(28,003,843	)		4,047,392			(1,914,170	)
			Loss before income taxes		(37,149,174	)		(9,859,352	)		(22,490,577	)
	Income taxes				—			—			—
			Net loss		(37,149,174	)		(9,859,352	)		(22,490,577	)
Preferred dividend					(726,889	)		(915,250	)		(1,158,244	)
Net loss attributable to common stockholders				$	(37,876,063	)	$	(10,774,602	)	$	(23,648,821	)
Net loss per common share:
	Basic			$	(0.88	)	$	(0.31	)	$	(0.78	)
	Diluted			$	(0.88	)	$	(0.40	)	$	(0.78	)
Weighted average common shares outstanding — basic					42,973,114			35,147,503			30,502,819
Weighted average common shares outstanding — diluted					42,973,114			40,610,003			30,502,819

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

F-5

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

							Common Stock Par																		Accumulated
		Preferred			Preferred		Value $.001												Additional						Other
		Stock			Stock								Common Stock			Common			Paid-In			Accumulated			Comprehensive			Treasury			Notes
		Series G			Series I		Issued Shares			Amount			Warrant			Stock Options			Capital			Deficit			Loss			Stock			Receivable			Total
Balance at March 31, 2003		$	1		$	—		25,627,686		$	25,628		$	1,857,581		$	1,545,375		$	169,434,857		$	(214,324,140	)	$	—		$	—		$	(5,000,000	)		(46,460,698	)
Conversion of debt			—			—		5,121,183			5,121			—			—			24,303,755			—			—			—			—			24,308,876
Exercise of stock options			—			—		7,727			8			—			—			38,397			—			—			—			—			38,405
Warrants issued			—			—		—			—			644,597			—			(309,998	)		—			—			—			—			334,599
Exercise of warrants			—			—		950			1			(3,971	)		—			8,529			—			—			—			—			4,559
Warrants expired			—			—		—			—			(528,449	)		—			528,449			—			—			—			—			—
Beneficial conversion feature on issuance of convertible debentures			—			—		—			—			—			—			9,500,000			—			—			—			—			9,500,000
Stock options issued			—			—		—			—			1,672,248			—			2,185,463			—			—			—			—			3,857,711
Series I Preferred stock issued			—			—		—			—			—			—			8,187,518			—			—			—			—			8,187,518
Common stock issued			—			1		365,202			365			—			—			(365	)		—			—			—			—			1
Other comprehensive loss:
	Net loss		—			—		—			—			—			—			—			(22,490,577	)		—			—			—			(22,490,577	)
	Total comprehensive loss		—			—		—			—			—			—			—			(22,490,577	)		—			—			—			(22,490,577	)
Balance at March 31, 2004			1			1		31,122,748			31,123			3,642,006			1,545,375			213,876,605			(236,814,717	)		—			—			(5,000,000	)		(22,719,606	)
Sale of Common stock			—			—		6,301,778			6,302			—			—			42,587,192			—			—			—			—			42,593,494
Conversion of debt			—			—		5,524,927			5,525			—			—			28,030,500			—			—			—			—			28,036,025
Conversion of preferred stock			(1	)		—		281,089			281			—			—			1,448			—			—			—			—			1,728
Exercise of stock options			—			—		33,667			33			—			—			122,720			—			—			—			—			122,753
Warrants issued			—			—		—			—			10,365,483			—			—			—			—			—			—			10,365,483
Exercise of warrants			—			—		35,162			35			(261,640	)		—			263,603			—			—			—			—			1,998
Warrants expired			—			—		—			—			(146,145	)		—			146,145			—			—			—			—			—
Preferred stock issuance costs			—			—		—			—			—			—			(587,858	)		—			—			—			—			(587,858	)
Dividends on preferred stock			—			—		—			—			—			—			(795,249	)		—			—			—			—			(795,249	)
Issuance of common stock in lieu of cash-preferred stock dividend			—			—		61,685			62			—			—			361,997			—			—			—			—			362,059
Stock tendered in payment of loan and retired			—			—		(773,735	)		(774	)		—			—			(4,951,133	)		—			—			—			5,000,000			48,093
Net assets acquired from NAP Madrid			—			—		—			—			—			—			—			—			—			(7,220,637	)		—			(7,220,637	)
Forfeiture of stock options			—			—		—			—			—			(7,115	)		7,115			—			—			—			—			—
Other comprehensive loss:
	Foreign currency translation adjustment		—			—		—			—			—			—			—			—			(172,882	)		—			—			(172,882	)
	Net loss		—			—		—			—			—			—			—			(9,859,352	)		—			—			—			(9,859,352	)
	Total comprehensive loss		—			—		—			—			—			—			—			(9,859,352	)		(172,882	)		—			—			(10,032,234	)

F-6

						Common Stock Par																Accumulated
		Preferred		Preferred		Value $.001										Additional						Other
		Stock		Stock						Common Stock			Common			Paid-In			Accumulated			Comprehensive			Treasury			Notes
		Series G		Series I		Issued Shares		Amount		Warrant			Stock Options			Capital			Deficit			Loss			Stock			Receivable			Total
Balance at March 31, 2005			—		1		42,587,321		42,587		13,599,704			1,538,260			279,063,085			(246,674,069	)		(172,882	)		(7,220,637	)		—			40,176,049
Conversion of preferred stock			—		—		146,655		147		—			—			(147	)		—			—			—			—			—
Exercise of stock options			—		—		113,456		113		—			—			185,869			—			—			—			—			185,982
Warrants issued for services			—		—		—		—		45,226			—			—			—			—			—			—			45,226
Accrued dividends on preferred stock			—		—		—		—		—			—			(726,889	)		—			—			—			—			(726,889	)
Exercise of warrants			—		—		15,000		15		(41,070	)		—			94,555			—			—			—			—			53,500
Forfeiture of stock options			—		—		—		—		—			(956,256	)		956,256			—			—			—			—			—
Warrants expired			—		—		—		—		(352,200	)		—			352,200			—			—			—			—			—
Stock-based compensation			—		—		—		—		—			—			755,644			—			—			—			—			755,644
Issuance of common stock in lieu of cash-preferred stock dividend			—		—		27,920		28		—			—			173,355			—			—			—			—			173,383
Common stock issued in acquisition			—		—		1,600,000		1,600		—			—			10,753,600			—			—			—			—			10,755,200
Loans issued to employees, net of repayments			—		—		—		—		—			—			—			—			—			—			(287,730	)		(287,730	)
Other comprehensive loss:																																—
	Foreign currency translation adjustment		—		—		—		—		—			—			—			—			(144,874	)		—			—			(144,874	)
	Net loss		—		—		—		—		—			—			—			(37,149,174	)		—			—			—			(37,149,174	)
	Total comprehensive loss		—		—		—		—		—			—			—			(37,149,174	)		(144,874	)		—			—			(37,294,048	)
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

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

F-7

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

					For the Year Ended March 31,
					2006			2005			2004
Cash flows from operating activities:
	Net loss				$	(37,149,174	)	$	(9,859,352	)	$	(22,490,577	)
	Adjustments to reconcile net loss to net cash used in operating activities
		Depreciation and amortization of long-lived assets				8,678,168			5,697,071			4,698,292
		Change in estimated fair value of embedded derivatives				4,761,000			(15,283,500	)		—
		Accretion on convertible debt and mortgage payable				6,769,030			3,303,168			—
		Amortization of beneficial conversion feature on issuance of convertible debentures				—			904,761			8,595,239
		Amortization of debt issue costs				1,814,480			1,402,010			130,483
		Provision for bad debt				249,425			317,603			167,135
		Interest payment in kind on notes payable				823,039			—			—
		Impairment of long-lived assets				—			813,073			—
		Stock-based compensation				975,644			—			2,185,463
		Gain on debt restructuring and extinguishment				—			(3,626,956	)		(8,475,000	)
		Loss on disposal of property and equipment				174,747			—			—
		Gain on sale of asset				(499,388	)		—			—
		Other, net				(317,549	)		(44,425	)		74,034
		Warrants issued for services				45,226			202,550			—
		(Increase) decrease in:
			Accounts receivable			(5,835,215	)		(1,129,348	)		(3,220,339	)
			Capital lease receivable, net of unearned interest			1,365,713			(6,736,537	)		—
			Restricted cash			1,754,981			(1,355,975	)		—
			Prepaid and other assets			(2,879,615	)		(984,947	)		279,530
		Increase (decrease) in:
			Accounts payable and accrued expenses			1,624,057			(1,857,528	)		(1,166,016	)
			Interest payable			1,152,406			1,001,428			(1,526,664	)
			Deferred revenue			3,800,060			(691,798	)		1,715,246
			Net operating assets/liabilities of discontinued operations			—			—			(1,170,980	)
			Construction payables			—			(820,146	)		—
			Deferred rent and other liabiltiies			770,295			4,387,360			4,327,831
				Net cash used in operating activities		(11,922,670	)		(24,361,488	)		(15,876,323	)
Cash flows from investing activities:
	Restricted cash					1,782,956			(4,000,000	)		(20,571	)
	Purchase of property and equipment					(8,483,784	)		(10,508,261	)		(4,054,741	)
	Acquisition of a majority interest in NAP Madrid					—			(2,537,627	)		—
	Acquisition of TECOTA, net of cash acquired					—			(73,936,374	)		—
	Proceeds from sale of assets					762,046			—			—
	Acquisition of interest rate cap agreement					—			(100,000	)		—
	Acquisition of Dedigate, net of cash acquired					203,308			—			—
	Issuance of notes receivable					(344,530	)		—			—
	Repayments of notes receivable					56,800			50,000			—
				Net cash used in investing activities		(6,023,204	)		(91,032,262	)		(4,075,312	)
Cash flows from financing activities:
Increase in restricted cash						—			(1,681,401	)		—
Proceeds from mortgage loan and warrants						—			49,000,000			750,000
Issuance of senior secured notes and warrants						—			30,000,000			—
Decrease in construction payables						—			—			1,215,505
Payment on loans						(4,938,566	)		(36,667,782	)		(2,996,517	)
Issuance of convertible debt						—			86,257,312			19,550,000
Payments on convertible debt						—			(10,131,800	)		(1,605,000	)
Debt issuance costs						(4,111	)		(6,007,370	)		—
Proceeds from issuance of common stock						—			42,593,594			—
Proceeds from sale of preferred stock						—			2,131,800			7,309,765
Preferred stock issuance costs						—			(587,860	)		—
Payments of preferred stock dividends						(383,834	)		(433,253	)		—
Other borrowings						—			850,262			—
Payments under capital lease obligations						(566,307	)		(433,712	)		(1,334,325	)
Proceeds from exercise of stock options and warrants						239,482			124,760			32,631
Proceeds from exercise of preferred stock conversions						—			1,730			—
				Net cash (used in) provided by financing activities		(5,653,336	)		155,016,280			22,922,059
				Net increase(decrease) in cash		(23,599,210	)		39,622,530			2,970,424
	Cash and cash equivalents at beginning of period					44,001,144			4,378,614			1,408,190
	Cash and cash equivalents at end of period				$	20,401,934		$	44,001,144		$	4,378,614

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

F-8

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Business and Organization

      Terremark Worldwide, Inc. and subsidiaries (collectively, 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 the 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

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

      The consolidated financial statements include the accounts of 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) (collectively referred to as “Terremark”). All significant intercompany accounts and transactions between consolidated companies have been eliminated in consolidation.

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 recognition, profit recognition and allowance for bad debts

      Data center revenues consist of monthly recurring fees for colocation, exchange point, and managed and professional services fees. It also includes monthly rental income for unconditioned space in the Company’s Miami facility. 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, we allocate revenue between the elements based on acceptable fair value allocation methodologies, provided that each element meets the criteria for 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.

F-9

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Revenue is recognized when there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection of the receivable is reasonably assured. The Company assesses 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 the 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 exposures 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 our results of operations. Furthermore, the Company has estimated the fair value of these embedded derivatives using a theoretical model based on the historical volatility of its common stock over the past year. If an active trading market develops for the Senior Convertible Notes or the Company is able to find comparable market data, it may in the future be able to use actual market data to adjust the estimated fair value of these embedded derivatives. Such adjustment could be significant and would be accounted for prospectively.

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

Significant concentrations

      The Company’s two largest customers agencies of the federal government and Blackbird Technologies accounted for approximately 19% and 14%, respectively, of data center revenues for the year ended March 31, 2006. For the year ended March 31, 2005, the Company’s two largest customers accounted for approximately 42% and 12%, respectively, of data center revenues.

Stock-based compensation

      The Company uses the intrinsic value method to account for its employee stock-based compensation plans. Under this method, compensation expense is based on the difference, if any, on the date of grant,

F-10

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

between the fair value of the Company’s shares and the option’s exercise price. The Company accounts for stock based compensation to non-employees using the fair value method.

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

	For the Year Ended March 31,
	2006			2005			2004
Net loss attributable to common shareholders as reported	$	(37,876,063	)	$	(10,774,602	)	$	(23,648,821	)
Employee related stock-based compensation expense included in net loss		975,644			—			2,185,463
Stock-based compensation expense if the fair value method had been adopted		(3,691,670	)		(2,112,914	)		(3,288,790	)
Pro forma net loss attributable to common shareholders		(40,592,089	)		(12,887,516	)		(24,752,148	)
Basic loss per common share — as reported	$	(0.88	)	$	(0.31	)	$	(0.78	)
Basic loss per common share — pro forma	$	(0.94	)	$	(0.37	)		(0.81	)
Diluted loss per common share — as reported	$	(0.88	)	$	(0.40	)	$	(0.78	)
Diluted loss per common share — pro forma	$	(0.94	)	$	(0.45	)	$	(0.81	)

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

	2006			2005			2004
Risk Free Rate		3.63% - 4.83	%		2.87% - 4.33	%		2.14% - 3.50	%
Volatility		112% - 121	%		126% - 137	%		150	%
Expected Life		5 years			5 years			5 years
Expected Dividends		0	%		0	%		0	%

      On March 23, 2006, 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 incentive 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 460,000 shares became immediately exercisable. All other terms of these options remain unchanged.

      The Company will adopt Financial Accounting Standards Board Statement No. 123 (revised 2004) (“SFAS 123R”), “Share-Based Payment” as of April 1, 2006, and will then recognize compensation expense prospectively for all future stock-based grants. 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 fiscal quarter ending June 30, 2006. The Company has recognized approximately $756,000 (before tax) of compensation expense during the quarter ended March 31, 2006 as a result of the acceleration of the vesting of the options, but will not be required to recognize future compensation expenses for the accelerated options under FAS 123R unless the Company makes modifications to the options, which is not anticipated. The future compensation expense that will be avoided, based on the Company’s implementation date for SFAS 123R on April 1, 2006, is approximately $1,500,000, $900,000, and $170,000 in the fiscal

F-11

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

years ended March 31, 2007, 2008, and 2009, respectively. The Company, however, expects future stock-based compensation grants to have a significant impact on its result of operations.

Stock warrants

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

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

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

	March 31,
	2006			2005			2004
Net loss	$	(37,149,174	)	$	(9,859,352	)	$	(22,490,577	)
Adjustments:
Preferred dividend		(726,889	)		(915,250	)		(1,158,244	)
Interest expense, including amortization of discount and debt issue costs		—			9,739,395			—
Change in fair value of derivatives embedded within convertible debt		—			(15,283,500	)		—
	$	(37,876,063	)	$	(16,318,707	)	$	(23,648,821	)

F-12

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

	March 31,
	2006		2005		2004
Basic:
Weighted average common shares outstanding — basic		42,973,114		35,147,503		30,502,819
Diluted:
Weighted average common shares outstanding — basic		42,973,114		35,147,503		30,502,819
Weighted average Senior Convertible Notes		—		5,462,500		—
Weighted average common shares outstanding — diluted		42,973,114		40,610,003		30,502,819

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

	March 31,
	2006		2005		2004
9% Senior convertible notes		6,900,000		—		—
Series I convertible preferred stock		1,130,000		1,276,667		1,333,333
Series H redeemable preferred stock		29,400		29,400		29,400
10% convertible debentures		—		—		5,000,000
13% convertible debentures		—		—		481,308
13.125% convertible debentures		—		—		416,667
Common stock warrants		2,679,636		2,712,436		673,140
Common stock options		2,257,700		1,744,419		1,444,245
Restricted stock		15,000		—		—

Reclassifications

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

Minority interest

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

Other comprehensive loss

      Other comprehensive loss 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 loss and foreign currency translation adjustments, which is presented in the accompanying consolidated statement of stockholders’ equity.

      Our 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. Income statement

F-13

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

items are translated at the average exchange rates for the year. The impact of currency fluctuations is included in other comprehensive loss as a currency translation adjustment. The net gains and losses resulting from foreign currency transactions are recorded in net income (loss) in the period incurred and were not significant for any of the periods presented.

Cash and cash equivalents

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

Restricted cash

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

Property and equipment

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

Building	39 years
Improvements	5 - 20 years
Computer software	3 years
Furniture, fixture and equipment	5 - 20 years

      Costs for improvements and betterments that extend the life of assets are capitalized. Maintenance and repair expenditures are expensed as incurred. Leasehold improvements are amortized over the shorter of the useful life of the assets or a term that includes required lease periods and renewals that are deemed to be reasonably assured at the date the leasehold improvements are purchased. Leasehold improvements acquired in a business combination are amortized over the shorter of the useful life of the assets or a term that includes required lease periods and renewals that are deemed to be reasonably assured at the date of acquisition.

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

      Goodwill and intangible assets that have indefinite lives are not amortized, but rather, are tested for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be fully recoverable. The goodwill impairment test involves a two-step approach. The first step involves a comparison of the fair value of each of our reporting units with its carrying amount. If a reporting unit’s carrying amount exceeds its fair value, the second step is performed. The second step involves a comparison of the implied fair value and carrying value of that reporting unit’s goodwill. To the extent that a reporting unit’s carrying amount exceeds the implied fair value of its goodwill, an impairment loss is recognized. Identifiable intangible assets not subject to amortization are assessed for impairment by comparing the fair value of the intangible asset to its carrying amount. An impairment loss is recognized for the amount by which the carrying value exceeds fair value. Intangible assets that have finite useful lives are amortized over their useful lives.

      Goodwill represents the carrying amount ($16,771,189) of the excess purchase price over the fair value of identifiable net assets acquired in conjunction with (i) the acquisition of a corporation holding rights to develop and manage facilities catering to the telecommunications industry and (ii) the acquisition of

F-14

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Dedigate, N.V., a managed host services provider in Europe. The Company performed the annual tests for impairment for the rights to develop and manage facilities catering to the telecommunications industry in the quarters ended March 31, 2006 and 2005, and concluded that there were no impairments. Since Dedigate, N.V. was acquired in August 2005, the Company will perform the required annual test impairment for Dedigate related intangibles in the quarter ended September 30, 2006.

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

      Goodwill and other intangibles, net, consists of the following:

		March 31,
		2006		2005
Goodwill		$	16,771,189	$	9,999,870
Intangibles:
	Customer base		1,800,000		—
	Technology		2,400,000		—
			4,200,000		—
Accumulated amortization			520,000		—
		$	3,680,000	$	—

      The Company expects to record amortization expense associated with these intangible assets as follows:

	Customer Base		Technology
2007	$	180,000	$	600,000
2008		180,000		600,000
2009		180,000		600,000
2010		180,000		200,000
2011		180,000		—
Thereafter		780,000		—
	$	1,680,000	$	2,000,000

Rent expense

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

F-15

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Fair value of financial instruments

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

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

	March 31, 2006				March 31, 2005
	Book Value		Fair Value		Book Value		Fair Value
Mortgage payable, including current portion	$	46,540,181	$	40,021,636	$	46,726,594	$	48,822,510
Notes payable, including current portion		25,609,890		22,756,178		28,154,087		25,572,448
Convertible debt		59,102,452		73,059,204		53,972,558		75,350,377

      As of March 31, 2006 and 2005 the fair value of the Company’s notes payable and convertible debentures was based on discounted cash flows using a discount rate of approximately 15% and 13%, respectively. As of March 31, 2005, the fair value of the mortgage payable was estimated as equal to their unpaid principal balance due to its floating interest rate. The book value for the Company’s mortgage payable and notes payable is net of the unamortized discount to debt principal. See Notes 6 and 9.

Income taxes

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

Beneficial conversion feature

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

F-16

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Recent accounting standards

      In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment” (“SFAS No. 123(R)”). SFAS No. 123(R) revises SFAS No. 123, “Accounting for Stock-Based Compensation” and requires companies to expense the fair value of employee stock options and other forms of stock-based compensation, such as employee stock purchase plans and restricted stock awards. In addition, SFAS No. 123(R) supersedes Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees” and amends SFAS No. 95, “Statement of Cash Flows.” Under the provisions of SFAS No. 123(R), stock-based compensation awards must meet certain criteria in order for the award to qualify for equity classification. An award that does not meet those criteria will be classified as a liability and be remeasured each period. SFAS No. 123(R) retains the requirements on accounting for the income tax effects of stock-based compensation contained in SFAS No. 123; however, it changes how excess tax benefits will be presented in the statement of cash flows from operating to financing activities. In addition, in March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB No. 107”), which offers guidance on SFAS No. 123(R). SAB No. 107 was issued to assist preparers by simplifying some of the implementation challenges of SFAS No. 123(R) while enhancing the information that investors receive. Key topics of SAB No. 107 include discussion on the valuation models available to preparers and guidance on key assumptions used in these valuation models, such as expected volatility and expected term, as well as guidance on accounting for the income tax effects of SFAS No. 123(R) and disclosure considerations, among other topics. SFAS No. 123(R) and SAB No. 107 were effective for reporting periods beginning after June 15, 2005; however in April 2005, the SEC approved a new rule that SFAS No. 123(R) and SAB No. 107 are now effective for public companies for annual, rather than interim, periods beginning after June 15, 2005. As a result, the first quarter ended June 30, 2006 will be the first period in which the Company will report stock-based compensation under the provisions of SFAS No. 123(R) and SAB No. 107. The adoption of SFAS No. 123(R), including related FASB Staff Positions issued during 2005 and 2006, and SAB No. 107 are expected to have a significant impact on the Company’s financial position and results of operations. Under SFAS No. 123(R), the Company has selected the modified prospective application method and, as a result, will not restate any prior financial statements. See stock-based compensation section of this footnote for additional information on the Company’s implementation strategy of SFAS No. 123(R).

      In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an Amendment of APB Opinion No. 29” (“SFAS No. 153”). 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 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 it enters into, if any.

      In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations, an Interpretation of FASB Statement No. 143” (“FIN No. 47”). FIN No. 47 clarifies that the term, conditional retirement obligation, as used in SFAS No. 143, “Accounting for Asset Retirement Obligations”, refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. FIN No. 47 further clarifies that the obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement and provides guidance on how an entity might reasonably estimate the fair value of such a conditional asset retirement obligation. FIN No. 47 is effective for fiscal years ending after December 15, 2005. The adoption of

F-17

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FIN No. 47 has not had a significant impact on the Company’s financial position, results of operations and cash flows.

      In June 2005, the FASB approved EITF Issue 05-6, “Determining the Amortization Period for Leasehold Improvements Purchased after Lease Inception or Acquired in a Business Combination” (“EITF 05-6”). EITF 05-6 addresses the amortization period for leasehold improvements acquired in a business combination and leasehold improvements that are placed in service significantly after and not contemplated at the beginning of a lease term. EITF 05-6 states that (i) leasehold improvements acquired in a business combination should be amortized over the shorter of the useful life of the assets or a term that includes required lease periods and renewals that are deemed to be reasonably assured at the date of acquisition and (ii) leasehold improvements that are placed into service significantly after and not contemplated at or near the beginning of the lease term should be amortized over the shorter of the useful life of the assets or a term that includes required lease periods and renewals that are deemed to be reasonably assured at the date the leasehold improvements are purchased. EITF 05-6 is effective for leasehold improvements that are purchased or acquired in reporting periods beginning after June 29, 2005. The adoption of EITF 05-6 has not had a significant impact on the Company’s financial position and results of operations.

      In September 2005, the FASB approved EITF Issue 05-7, “Accounting for Modifications to Conversion Options Embedded in Debt Securities and Related Issues” (“EITF 05-7”). EITF 05-7 addresses that the change in the fair value of an embedded conversion option upon modification should be included in the analysis under EITF Issue 96-19, “Debtor’s Accounting for a Modification or Exchange of Debt Instruments,” to determine whether a modification or extinguishment has occurred and that changes to the fair value of a conversion option affects the interest expense on the associated debt instrument following a modification. Therefore, the change in fair value of the conversion option should be recognized upon the modification as a discount or premium associated with the debt, and an increase or decrease in additional paid-in capital. EITF 05-7 is effective for all debt modifications in annual or interim periods beginning after December 15, 2005. The adoption of EITF 05-7 will not have a significant impact on the Company’s financial position and results of operations.

      In September 2005, the EITF reached consensus on Issue No. 05-8, “Income Tax Consequences of Issuing Convertible Debt with a Beneficial Conversion Feature” (“EITF 05-8”). EITF 05-8 concludes that (i) the issuance of convertible debt with a beneficial conversion feature results in a basis difference that should be accounted for as a temporary difference and (ii) the establishment of the deferred tax liability for the basis difference should result in an adjustment to additional paid in capital. The Company believes that the underlying concepts in EITF 05-8 should be similarly applied to debt for which an embedded derivative has been bifurcated under FASB Statement No. 133, “Accounting for Derivatives Instruments and Hedging Activities.” This application results in the recognition of deferred taxes upon issuance for the temporary differences existing on both the debt instrument and the embedded derivative. Subsequent changes in fair value of embedded derivative will result in remeasurement of the related deferred tax account. The guidance in this Issue should be implemented by retrospective application in financial statements for interim and annual reporting periods beginning after December 15, 2005. Early application is permitted for periods for which financial statements have not been issued. The Company’s convertible debt has embedded derivatives that are bifurcated and accounted for separately. The Company’s retrospective application of EITF 05-8 changes the composition of certain deferred tax disclosure items as of March 31, 2005 and did not have an impact on the Company’s financial position, results of operations or cash flows.

      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

F-18

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 on the Company’s financial position, results of operations and cash flows.

3. Acquisitions

      On August 5, 2005, the Company acquired all of the outstanding common stock of Dedigate, N.V., a managed host services provider in Europe. The preliminary purchase price of $12,138,963 was comprised of: (i) 1,600,000 shares of the Company’s common stock with a fair value of $10,755,200, (ii) cash consideration of $653,552 and (iii) direct transaction costs of $730,211. The fair value of the Company’s stock was determined using the five-day trading average price of the Company’s common stock for two days before and after the date the transaction was announced in August 2005. The costs to acquire Dedigate were allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their respective fair values, and any excess was allocated to goodwill. As of March 31, 2006, the original purchase price allocation has been adjusted by an increase in goodwill of $287,659, an increase in other liabilities of $127,013 and a decrease of other assets of $4,144. The effect of these adjustments on the related amortization was insignificant.

Cash and cash equivalents	$	1,587,384
Accounts receivable		977,150
Other current assets		130,931
Property and equipment		831,170
Intangible assets, including goodwill		10,971,319
Other assets		39,907
Accounts payable and accrued expenses		(1,285,553	)
Other liabilities		(1,113,345	)
Net assets acquired	$	12,138,963

F-19

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The allocation of acquisition intangible assets as of March 31, 2006 is summarized in the following table:

	Gross Carrying		Amortization		Accumulated
	Amount		Period		Amortization
Intangibles no longer amortized:
Goodwill	$	6,771,319		—	$	—
Amortizable intangibles:
Customer base		1,800,000		10 years		120,000
Technology acquired		2,400,000		4 years		400,000

      The results of Dedigate’s operations have been included in the condensed consolidated financial statements since the acquisition date. The following unaudited pro forma financial information of the Company for the twelve months ended March 31, 2006 and 2005 have been presented as if the acquisition of Dedigate had occurred as of the beginning of each period. This pro forma information does not necessarily reflect the results of operations if the business had been managed by the Company during these periods and is not indicative of results that may be obtained in the future.

	March 31,
	2006			2005
Revenues	$	65,143,150		$	54,111,614
Net loss	$	(36,995,700	)	$	(9,576,352	)
Net loss per common share:
Basic	$	(0.85	)	$	(0.29	)
Diluted	$	(0.85	)	$	(0.38	)

4. Restricted cash consists of:

	March 31,
	2006			2005
Capital improvements reserve	$	2,217,044		$	4,000,000
Security deposits under bank loan agreement		—			1,681,400
Security deposits under operating leases		1,597,798			1,641,531
Escrow deposits under mortgage loan agreement		474,073			503,921
		4,288,915			7,826,852
Less: current portion		(474,073	)		(2,185,321	)
	$	3,814,842		$	5,641,531

F-20

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5. Property and Equipment

	March 31,
	2006			2005
Land	$	10,139,683		$	10,393,877
Building and improvements		99,634,006			96,643,573
Furniture, equipment and software, including $1,912,926 and $958,230 in capital leases		46,450,997			34,479,387
		156,224,686			141,516,837
Less accumulated depreciation and amortization, including $377,032 and $192,959 in capital leases		(26,331,368	)		(18,110,516	)
	$	129,893,318		$	123,406,321

6. Mortgage Payable

      In connection with the purchase of TECOTA on December 31, 2004, the Company obtained a $49.0 million loan from CitiGroup Global Markets Realty Corp., $4.0 million of which is restricted and can only be used to fund customer related capital improvements made to the NAP of the Americas in Miami. This loan is collateralized by a first mortgage on the NAP of the Americas building and a security interest in all then existing building improvements that 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 (4.90% at March 31, 2006) plus 4.75%, and matures in February 2009. This mortgage loan includes numerous covenants imposing significant financial and operating restrictions on Terremark’s business. See Note 9.

      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 at approximately $2,200,000, which was recorded as a discount to the debt principal. Proceeds from the issuance of the mortgage note payable and the warrants were allocated based on their relative fair values. The costs related to the issuance of the mortgage loan were capitalized and amounted to approximately $1,570,000. The discount to the debt principal and the debt issuance costs will be amortized to interest expense using the effective interest rate method over the term of the mortgage loan. The effective interest rate of the mortgage loan is 8.6%.

7. Convertible Debt

      Convertible debt consists of:

	March 31,
	2006		2005
Senior Convertible Notes, face value of $86.25 million, due June 15, 2009, and convertible into shares of the Company’s common stock at $12.50 per share. Interest at 9% is payable semi-annually, on December 15 and June 15 (Effective interest rate of 23.4%)	$	59,102,452	$	53,972,558
Less: Current portion of convertible debt		—		—
Convertible debentures	$	59,102,452	$	53,972,558

F-21

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

      The Senior Convertible Notes are unsecured obligations and 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 $135 per $1,000 of principal if the change in control takes place before June 16, 2006 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 a takeover whole premium due upon a change in 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.

8. Derivatives

      The Senior Convertible Notes contain embedded derivatives that require separate valuation from the Senior Convertible Notes: a conversion option that includes an early conversion incentive, an equity

F-22

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

participation right and a takeover make whole premium due upon a change in control. The Company has estimated to date that the embedded derivatives related to the equity participation rights and the takeover make whole premium do not have significant value.

      The Company estimated that the embedded derivatives had an estimated fair value of $20,199,750 on March 31, 2005 and a March 31, 2006 estimated fair value of $24,960,750, resulting from the conversion option. The change of $4,761,000 in the estimated fair value of the embedded derivative was recognized as an expense in the year ended March 31, 2006. The Company recognized a gain of $15,283,500 for the year ended March 31, 2005 resulting from the conversion option.

9. Notes Payable

      In connection with the purchase of TECOTA on December 31, 2004, 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 credit.

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

F-23

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      At March 31, 2005, the Company also had a bank loan with an outstanding balance of 3.5 million Euros ($4.5 million at the March 31, 2005 exchange rate). The Company repaid the loan in November 2005.

10. Stockholders’ Equity

Preferred stock

Series H redeemable convertible preferred stock

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

      On June 1, 2005, the Series H convertible preferred stock became redeemable in cash at the request of the holder, and accordingly, is presented as a current liability in the accompanying consolidated financial statements.

Series I convertible preferred stock

      On March 31, 2004, the Company closed on the issuance of 400 shares of Series I 8% Convertible Preferred Stock for $7.8 million in cash and $2.2 million in promissory notes, together with warrants to purchase 2.8 million shares of the Company’s common stock which are exercisable for five years at $0.90 per share. The Company has collected all amounts due under the promissory notes. The Series I Preferred Stock is convertible into shares of the Company’s common stock at $0.75 per share. In January 2007, the Series I Preferred Stock dividend rate will increase to 10% per year until January 2009 when it increases to 12%. Dividends are payable, at the Company’s discretion, in shares of the Company’s common stock or cash. The Company has the right to redeem the Series I Preferred Stock at $25,000 per share plus accrued dividends at any time. Some of the Series I Preferred Stock shares were committed on dates where the conversion price was less than market. Accordingly, the Company recognized a non-cash preferred dividend of approximately $1.0 million in determining net loss per common share for the period ended March 31, 2004. The Series I Preferred Stock shall vote together with the Company’s common stock based on the then current conversion ratio.

Common stock

Issuance of Common Stock

      In August 2005, the Company issued 1,600,000 shares, valued at $10,755,200, of its common stock in connection with the acquisition of all of the outstanding common stock of Dedigate, N.V., a managed host services provider in Europe.

      In March 2005, the Company sold 6,000,000 shares in a public offering, at an offering price of $7.30 per share. After payment of underwriting discounts and commissions and other offering costs, the net proceeds to the Company were approximately $40.5 million.

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

F-24

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Conversion of debt to equity

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

      On June 1, 2004, the holders of $25.0 million of the Company’s 10% convertible debentures and the holders of $2.5 million of the Company’s 13.125% convertible debentures converted their debentures into 5,489,927 shares of the Company’s common stock.

      In April 2004, $262,500 of debt was converted to 35,000 shares of common stock at $7.50 per share.

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

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

      In April 2003, in conjunction with the Ocean Bank debt conversion of $15.0 million in debt to equity, the Company issued 2,000,000 shares of its common stock at $7.50 per share.

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

Conversion of preferred stock to common stock

      During the year ended March 31, 2006, 44 shares of the Series I preferred stock, with an aggregate fair value of $804,000 (based on closing price of the Company’s common stock at conversion date) were converted to 146,665 shares of common stock.

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

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

Grant of employee stock options

      In July 2005, the Compensation Committee of the Board of Directors approved the grant of options to certain employees, including some officers of the Company, to purchase 122,361 of the Company’s common stock at an exercise price of $6.74 per share.

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

Exercise of stock options

      During the year ended March 31, 2006, the Company issued 206,254 shares of its common stock in conjunction with the exercise of options, including 200,000 shares issued to a director of the Company. The exercise price of the options ranged from $2.50 to $6.74.

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

F-25

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

Exercise of warrants

      In March 2006, warrants were exercised for 2,500 shares of common stock at $0.10 per share.

      In December 2005, warrants were exercised for 2,500 shares of common stock at $0.10 per share.

      In July 2005, warrants were exercised for 10,000 shares of common stock at $5.30 per share.

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

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

      In June 2003, warrants were exercised for 950 shares of common stock at $4.80 per share.

Stock tendered in payment of loan

      On September 30, 2004, the Company’s Chairman and Chief Executive Officer repaid his outstanding $5.0 million loan from the Company by tendering 773,735 shares of Terremark 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 March 31, 2006.

Preferred stock dividend

      In August 2005, the Company issued 27,290 shares of common stock to holders of the Series I preferred stock in payment of dividends.

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

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

F-26

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Stock Warrants

      During the period from November 2000 through March 2006, the Company issued warrants to third parties for services and to facilitate certain debt and equity transactions. The following table summarizes information about stock warrants outstanding as of March 31, 2006.

						Estimated
	No. of shares		Exercise			Fair Value at
Issuance Date	able to purchase		Price		Expiration Date	Issuance
April 2005		7,200		6.90	April 2011	$	25,056
March 2005		10,000		7.20	March 2007		29,900
December 2004		2,000,000		6.80-8.80	March 2009		8,782,933
June 2004		181,579		9.50	June 2007		1,380,000
April 2004		5,000		7.00	April 2009		32,450
March 2004		285,397		9.00	March 2009		1,672,248
February 2004		1,210		9.00	February 2009		8,652
January 2004		5,000		7.10	January 2009		33,750
October 2003		5,000		7.30	October 2008		33,700
July 2003		10,000		6.20	July 2008		114,400
June 2003		30,000		5.00	June 2006		220,200
June 2003		25,000		7.50	June 2006		177,750
March 2003		30,000		7.50	March 2007		110,400
December 2002		30,000		7.50	March 2007		110,400
April 2002		27,000		4.00	March 2007		99,360
June 2001		1,300		17.20	June 2011		22,490
January 2002		950		4.80	June 2011		3,971
November 2000		25,000		27.60	November 2008		394,000
		2,679,636				$	13,251,660

      In December 2004, the Company issued warrants to purchase an aggregate of 2 million shares of its common stock at an average exercise price equal to $7.80 per share to the lenders in connection with the financing of the TECOTA acquisition. The estimated fair market value of such warrants was $8,782,933 (see Note 6 and 9).

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

Stock Options

      The Company has three stock option plans, whereby incentive and nonqualified options and stock appreciation rights may be granted to employees, officers, directors and consultants. There are 3,076,337 shares of common stock reserved for issuance under these plans. The exercise price of the options is determined by the Board of Directors, but in the case of an incentive stock option, the exercise price may not be less than 100% of the fair market value at the time of the grant. Options vest over periods not to exceed ten years.

F-27

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

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

					Weighted
					Average
		Number			Exercise Price
Outstanding at March 31, 2003			1,373,162		$	16.40
Granted			551,578			5.55
Expired/Terminated			(73,743	)		11.22
Exercised			(7,060	)		4.94
Outstanding at March 31, 2004			1,843,937		$	13.41
Granted			527,620			6.20
Expired/ Terminated			(39,236	)		3.67
Exercised			(33,666	)		8.20
Outstanding at March 31, 2005			2,298,655		$	11.99
Granted			344,661			5.74
	Expired/ Terminated		(179,362	)		18.74
	Exercised		(206,254	)		3.54
Outstanding at March 31, 2006			2,257,700		$	11.27
Options exercisable at:
March 31, 2006			2,257,700		$	11.27
March 31, 2005			1,758,755		$	13.90
Weighted average fair value of options granted during year ended:
March 31, 2006		$	4.87
March 31, 2005		$	5.39
March 31, 2004		$	5.10

      The following table summarizes information about options outstanding at March 31, 2006:

			Average Remaining				Number
			Contractual Life		Average		Exercisable
Range of Exercise Prices March 31, 2006	Outstanding at		(Years)		Exercise Price		Options at
$ 2.50- 5.00		336,765		8.36	$	3.91		336,765
$ 5.01-10.00		1,372,176		7.94	$	6.84		1,372,176
$10.01-11.50		15,150		3.39	$	10.72		15,150
$11.51-20.00		105,677		4.01	$	16.00		105,677
$20.01-30.00		114,570		3.74	$	25.15		114,570
$30.01-50.00		313,362		4.28	$	35.22		313,362
		2,257,700						2,257,700

F-28

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

11. Commitments and Contingencies

Leasing activities

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

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

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

      The Company has entered into capital lease agreements with third parties for equipment related primarily to the NAP of the Americas. Generally, the lease terms are for 48 months and contain $1.00 bargain purchase options. The aggregate gross related assets total approximately $889,000.

      Operating lease expense, in the aggregate, amounted to approximately $11.7 million, $9.7 million, and $7.8 million for the years ended March 31, 2006, 2005 and 2004, respectively.

      At March 31, 2006, future minimum lease payments for each of the following five years and thereafter under non-cancelable operating and capital leases having a remaining term in excess of one year are as follows:

			As Lessee				As Lessor
			Capital		Operating		Capital		Operating
			Leases		Leases		Leases		Leases
2007			$	690,453	$	5,009,933	$	2,507,029	$	3,393,511
2008				511,169		4,879,272		2,428,701		3,066,516
2009				223,537		3,745,270		1,575,748		2,581,712
2010				119,110		3,726,497		—		2,659,163
2011				117,340		3,800,232		—		2,738,938
Thereafter				16,310		33,309,488		—		14,427,616
	Total minimum lease payments		$	1,677,919	$	54,470,692	$	6,511,478	$	28,867,456
	Amount representing interest			252,682				935,956
		Net minimum lease payments	$	1,425,237			$	5,575,522

Litigation

      From time to time, the Company is involved in various litigations relating to claims arising out of the normal course of business. These claims are generally covered by insurance. The Company is not currently

F-29

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

subject to any litigation which singularly or in the aggregate could reasonably be expected to have a material adverse effect on the Company’s financial position or results of operations.

12. Related Party Transactions

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

      Following is a summary of transactions for the years ended March 31, 2006, 2005 and 2004 and balances with related parties included in the accompanying balance sheet as of March 31, 2006 and 2005.

	For the Year Ended March 31,
	2006		2005		2004
Rent paid to TECOTA	$	—	$	5,818,784	$	5,308,272
Services purchased from Fusion Telecommunications International, Inc.		1,270,504		957,483		501,080
Property management fees charged to TECOTA		—		144,826		198,000
Interest income on notes receivable — related party		—		50,278		76,284
Interest income from shareholder		29,728		28,944		32,489
Interest paid to shareholder		—		670,649		2,065,695
Consulting fees to certain directors		442,500		410,000		410,000
Other assets	$	452,444	$	477,846
Note receivable — related party		287,730		—

      The Company’s Chairman and Chief Executive Officer has a minority interest in Fusion Telecommunications International, Inc. (“Fusion”) and is a member of its board of directors. In addition, the Chairman and Chief Executive Officer of Fusion is a member of the Company’s board of directors. The Company has entered into consulting agreements with three members of its board 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 June 2006, the Company agreed to issue 15,000 of restricted stock to a director pursuant to a prior agreement in connection with the director bringing additional business to the Company.

13. Data Center Revenues

      Data center revenues consist of the following:

	For the Year Ended March 31,
	2006		2005
Colocation	$	28,126,193	$	21,402,860
Managed and professional services		28,088,192		9,017,282
Exchange point services		6,308,708		4,564,283
Other		6,189		918
	$	62,529,282	$	34,985,343
Technology infrastructure buildouts		—		11,832,745
Total data center revenues	$	62,529,282	$	46,818,088

F-30

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

14. Other Income (Expenses)

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

15. Income Taxes

      No provision for income taxes was recorded for each of the three years ended March 31, 2006, 2005 and 2004 as the Company incurred net operating losses in each year.

      Loss before income taxes is attributable to the following geographic locations:

	For the year ended March 31,
	2006			2005			2004
United States	$	(34,201,581	)	$	(8,367,640	)	$	(21,666,210	)
International		(2,947,593	)		(1,491,712	)		(824,367	)
	$	(37,149,174	)	$	(9,859,352	)	$	(22,490,577	)

      Deferred tax assets (liabilities) consist of the following:

	March 31,
	2006			2005
Deferred tax assets:
Net operating loss carryforwards	$	61,229,430		$	47,796,808
Net operating loss carryforwards retained from discontinued operations		17,280,709			17,280,709
Capitalized start-up costs		310,195			1,163,296
Embedded derivatives		9,485,085			7,675,905
Allowances and other		7,386,909			8,512,891
Total deferred tax assets		95,692,328			82,429,609
Valuation allowance		(75,896,123	)		(67,165,342	)
Deferred tax liability:
Intangibles		(1,251,200	)		—
Convertible debt		(10,318,847	)		(12,268,207	)
Depreciation		(8,305,610	)		(2,996,060	)
Other		(47,561	)		—
Total deferred tax liability		(19,923,218	)		(15,264,267	)
Net deferred tax asset (liability)	$	(127,013	)	$	—

      The Company’s accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of the Company’s deferred tax assets. To support the Company’s conclusion that a 100% valuation allowance was required, the Company primarily considered such factors as the Company’s history of

F-31

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

operating losses, the nature of the Company’s deferred tax assets and the absence of taxable income in prior carryback years. Although the Company’s operating plans assume taxable and operating income in future periods, the Company’s evaluation of all the available evidence in assessing the realizability of the deferred tax assets indicates that it is more likely than not that such plans are insufficient to overcome the available negative evidence.

      The valuation allowance increased by $8,730,781, $3,881,509 and $5,222,589 for the years ended March 31, 2006, 2005 and 2004, respectively. The change of the valuation allowance for the year ended March 31, 2006 was primarily attributed to the increase in the temporary differences related to the change in fixed assets, change in fair value of the derivatives, interest expense attributable to the derivatives and the increase in operational loss. The net change of the valuation allowance for the year ended March 31, 2005 was primarily due to the increase in temporary differences related to the change in fair value of the derivatives and the increase in operational loss. In the year ended March 31, 2004, the change in the valuation allowance was primarily due to the increase in operating loss.

      On April 28, 2000, Terremark Holdings, Inc. completed a reverse merger with AmTec, Inc. The Company determined that the net operating losses generated prior to the AmTech merger may have been limited by Federal tax laws that impose substantial restrictions on the utilization of net operating losses and credit carryforwards in the event of an “ownership change” for tax purposes, as defined in Section 382 of the Internal Revenue Code. Such a limitation is effective for a five year period. As a result, for the year ended March 31, 2006, the Company determined that it is no longer limited in utilizing net operating losses generated prior to the AmTec merger.

      The Company’s federal and state net operating loss carryforwards, amounting to approximately $206.6 million, begin to expire in 2011.

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

	For the Year Ended March 31,
	2006			2005			2004
Rate reconciliation Statutory rate		(34.0	)%		(34.0	)%		(34.0	)%
State income taxes, net of federal income tax benefit		(4.0	)		(3.5	)		(3.2	)
Permanent differences		0.3			3.7			14.0
Increase in valuation allowance		37.7			33.8			23.2
Effective tax rate		—	%		—	%		—	%

16. Information About the Company’s Operating Segments

      During the years ended March 31, 2006, 2005, and 2004, 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 buildout services. All other real estate activities are included in real estate services. The real estate services 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 segment’s net operating results.

F-32

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following present information about reportable segments:

	Data center			Real estate
For the year ended March 31,	operations			services			Total
2006
Revenue	$	62,529,282		$	—		$	62,529,282
Loss from operations		(9,145,331	)		—			(9,145,331	)
Net loss		(37,149,174	)		—			(37,149,174	)
2005
Revenue	$	46,818,088		$	1,329,526		$	48,147,614
Loss from operations		(13,506,734	)		(400,010	)		(13,906,744	)
Net loss		(9,490,543	)		(368,809	)		(9,859,352	)
2004
Revenue	$	17,034,377		$	1,179,362		$	18,213,739
Loss from operations		(20,237,820	)		(338,587	)		(20,576,407	)
Net loss		(22,152,261	)		(338,316	)		(22,490,577	)
Assets, as of
March 31, 2006	$	204,716,451		$	—		$	204,716,451
March 31, 2005	$	208,905,664		$	—		$	208,905,664

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

		For the Year Ended March 31,
		2006			2005			2004
Total segment loss from operations		$	(9,145,331	)	$	(13,906,744	)	$	(20,576,407	)
Change in fair value of derivatives			(4,761,000	)		15,283,500			—
Debt restructuring			—			3,420,956			8,475,000
Interest income			1,742,610			666,286			131,548
Interest expense			(25,048,519	)		(15,493,610	)		(14,624,922	)
Gain on real estate held for sale			499,388			—			—
Other income (expense)			(436,321	)		170,260			4,104,204
	Loss before income taxes	$	(37,149,174	)	$	(9,859,352	)	$	(22,490,577	)

F-33

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Company’s geographic statements of operations disclosures are as follows (in thousands):

		March 31,
		2006			2005			2004
Total revenues:
	United States	$	54,837		$	47,589		$	18,054
	International		7,692			559			160
		$	62,529		$	48,148		$	18,214
Cost of sales:
	United States	$	32,893		$	35,970		$	17,195
	International		5,931			928			136
		$	38,824		$	36,898		$	17,331
Loss from operations:
	United States	$	(6,353	)	$	(12,323	)	$	(19,754	)
	International		(2,792	)		(1,584	)		(822	)
		$	(9,145	)	$	(13,907	)	$	(20,576	)

      The Company’s long-lived assets are located in the following geographic areas (in thousands):

	March 31,
	2006		2005
United States	$	145,978	$	130,102
International		4,366		3,304
	$	150,344	$	133,406

F-34

TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

17. Supplemental Cash Flow Information

		For the Year Ended March 31,
		2006		2005		2004
Supplemental disclosures of cash flow information:
	Cash paid for interest	$	14,489,566	$	6,399,840	$	7,349,467
Non-cash operating, investing and financing activities:
	Warrants issued		45,226		1,380,000		644,597
	Conversion of notes payable to convertible debt		—		—		5,450,000
	Beneficial conversion feature on issuance of convertible debentures and preferred stock		—		—		10,472,021
	Assets acquired under capital leases		889,012		—		196,211
	Warrants exercised and converted to equity		—		261,640		3,971
	Conversion of accounts payable to equity		—		—		229,588
	Conversion of debt and related accrued interest to equity		—		262,500		9,420,004
	Conversion of construction payables and accrued interest to equity		—		—		14,400,977
	Conversion of convertible debt and related accrued interest to equity		—		27,773,524		258,306
	Settlement of note receivable through extinguishment of convertible debt		—		418,200		—
	Net assets acquired in exchange for common stock		10,755,200		—		—
	Cancellation and expiration of stock options and warrants		1,308,456		146,145		26,575
	Settlement of notes receivable — related party by tendering Terremark Stock		—		4,951,904		—
	Non-cash preferred dividend		173,355		481,947		(1,158,244	)
	Conversion of preferred stock to equity		804,000		1,925,000		—

18. Subsequent Event

      On June 1, 2006, the Company received notice from the holder of all 294 shares of the series H convertible preferred stock notifying that the holder had exercised its right to require the Company to redeem all of these shares. The Company second expects to redeem these shares sometime in the quarter of fiscal year 2007.

F-35 EX-10.38 2 g01922exv10w38.htm AGREEMENT

Exhibit 10.38

June 13, 2006

Mr. Arthur L. Money
3803 Riverwood Road
Alexandria, VA 22309-2726

Re: Amended and Restated Employment Letter Agreement with Terremark
Worldwide, Inc.

Dear Art:

On January 3, 2003, Terremark Worldwide, Inc. (the “Company”) and you signed a letter agreement (the “Letter Agreement”) containing the terms of your employment in connection with the heading the Company’s Government Division, which focuses on selling the Company’s products and services to the U.S. Government (the “Government Division”), including but not limited to military, Homeland Security, and intelligence community customers (“the Project”). On May 3, 2003, the Company and you signed an amended and restated form of the Letter Agreement. Today, you and the Company have agreed to further revise the compensation calculations of your employment, so, in the interests of clarity, this Letter Agreement revises those calculations and otherwise restates the original terms of the Letter Agreement. This Letter Agreement supersedes all prior agreements on this matter related to your employment and is retroactive to January 3, 2003.

1. SERVICES TO BE RENDERED AS A TERREMARK EMPLOYEE

Under the terms of this agreement, your role would be to function as the head of the Government Division and your responsibilities would be to provide strategic advice and business development assistance to the Government Division, and otherwise assist the Company in the successful implementation of the Project. While we would envision you working closely with the Company’s Chief Operating Officer, its head of Global Sales and its General Counsel, your direct “reporting” relationship will be with me, as the Chairman of the Company. Your title shall be “Director - Government, Military and Homeland Security Affairs”.

We do not envision requiring any specific number of hours or days per month or quarter. We would rely on your sense of professionalism and your desire for success to determine the extent to which you would need to devote yourself to Company matters. We see no need for you to have a permanent office at any Terremark location, but will provide you with an office, as needed, when you visit Miami and we will make sure you have whatever secretarial support you need to assist you with your Company related work.

The Company will reimburse you for all reasonable expenses related to your responsibilities with the Company, in the same manner as it does for other senior executives of the Company.

June 13, 2006
Mr. Arthur L. Money
Page 2 of 3

2. COMPENSATION

In consideration of the services you have provided and are expected to continue to provide under the Letter Agreement, as amended to date, and, in lieu and in full satisfaction of any and all payments to which you may have been entitled under the previous terms of the Letter Agreement, you will continue to receive payments equal to $5,000 per month. In addition, within two (2) weeks of the execution of this Letter Agreement, you will receive 15,000 shares of Terremark’s common stock issued pursuant to the terms of the Company’s 2005 Executive Incentive Compensation Plan.

3. OTHER CONSIDERATIONS

i.	Notwithstanding your title and your status as an employee and a member of the Board of Directors of the Company, we both agree and understand that you are not an officer and you will not have any of the responsibilities of an officer or the ability to bind the Company to any agreement with a third party, or to incur any obligation or liability on behalf of the Company;
ii.	This Letter Agreement may only be modified by a written document duly signed by you and the Company;
iii.	This Letter Agreement shall expire on January 31, 2007 (the “Expiration Date”); provided, however, the term shall continue in effect thereafter unless (a) terminated in writing by the Company or you on 48 hours written notice “for cause” (which is intended to be narrowly defined to consist only of a material breach of this agreement or conduct by one party that is so embarrassing or egregious as to render the relationship damaging to the non-offending party), or (b) terminated in writing by the Company or you, without cause, on ninety (90) days notice;
iv.	The Company and you will consult and agree upon the form, terms and substance of all press releases, public announcements and publicity statements with respect to this Letter Agreement;
v.	In the event of your death prior to receiving any or all payments to which you are entitled, the remaining Compensation to be paid under the terms hereof shall be paid at the time and in the manner provided in Section 2 to the beneficiary or beneficiaries who you have designated on a beneficiary designation form properly filed by you with the Company in accordance with the Company’s policies and procedures. If no such designated beneficiary survives you, such remaining benefits shall be paid as set forth above to your estate.
vi.	This Letter Agreement, when countersigned by the Company, will constitute a binding agreement between you and the Company, and shall be governed by the laws of the State of Florida.

June 13, 2006
Mr. Arthur L. Money
Page 3 of 3

If you are in agreement with the above terms and conditions, please sign below in evidence of your acceptance of this Letter Agreement.

Terremark Worldwide, Inc.
By:	/s/ Manuel D. Medina
	Name:	Manuel D. Medina
	Title:	Chairman of the Board, President and Chief Executive Officer

Acknowledged and agreed to
this 14th day of June, 2006

/s/ Arthur L. Money  

Arthur L. Money 

EX-10.38

Agreement

EX-21.1

EXHIBIT 21.1

SUBSIDIARIES

NAP of the Americas, West Inc., a Florida corporation
Park West Telecommunications Investors, Inc., a Florida corporation
TECOTA Services Corp., a Delaware corporation
Terremark Trademark Holdings, Inc., a Nevada corporation
TerreNAP Data Centers, Inc., a Florida corporation
TerreNAP Services, Inc., a Florida corporation
Optical Communications, Inc., a Florida corporation

TECOTA Services Corp. owns a 100% interest in:

Technology Center of the Americas, LLC, a Delaware limited liability corporation

TerreNAP Data Centers, Inc., is the sole shareholder of:

NAP of the Americas, Inc., a Florida corporation
Terremark Asia Company, Ltd., a Bermuda corporation
Terremark Latin America, Inc., a Florida corporation
Terremark Europe, Inc., a Florida corporation

TerreNAP Services, Inc. is the sole shareholder of:

Terremark Financial Services, Inc., a Florida corporation
Terremark Fortune House #1, Inc., a Florida corporation
Terremark Management Services, Inc., a Florida corporation
Terremark Realty, Inc., a Florida corporation
Terremark Technology Contractors, Inc., a Florida corporation

Terremark Latin America, Inc. is the sole shareholder of:

Spectrum Telecommunications Corp., a Delaware corporation

Terremark Latin America, Inc. owns 99% of:

Terremark Latin America de Argentina, S.A., an Argentine sociedad anónima (Dormant)
Terremark Latin America (Brasil) Ltda., a Brazilian corporation
Terremark Latin America de Mexico, S.A. de C.V., a Mexican sociedad anónima de capital variable

Terremark Latin America, Inc. is a minority shareholder of:

Terremark do Brasil Ltda., a Brazil corporation

Terremark Latin America (Brasil) Ltda, a Brazil corporation, is a majority shareholder of:

Terremark do Brasil Ltda., a Brazil corporation

Terremark Europe, Inc. is the sole shareholder of:

Dedigate, N.V., a Belgium corporation

Global Arete, S.L., a Spain corporation

Terremark Worldwide, Inc. owns a minority shareholder interest in:

Terremark Latin America de Argentina, S.A., an Argentine sociedad anónima (Dormant)
Terremark Latin America (Brasil) Ltda, a Brazil corporation
Terremark Latin America de Mexico, S.A. de C.V., a Mexican sociedad anónima de capital variable

Terremark Worldwide is the sole shareholder of:

Terremark Federal Group Inc., a Delaware corporation

Terremark Worldwide owns 80% of:

NAP de las Americas Madrid, S.A.

Terremark Asia is a majority shareholder of:

Terremark Hong Kong Limited, a Hong Kong Corp. (Dormant)

  EX-23.1 4 g01922exv23w1.htm CONSENT OF PRICEWATERHOUSECOOPERS LLP

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-118369, 333-98331 and 333-132995) and on Form S-3 (Nos. 333-123775, 333-102286, 333-121133 and 333-127622) of our report dated August 4, 2005 except for the restatement described in Note 2 included in the 2005 Form 10K (Amendment No. 3) (not separately presented herein) to correct annual disclosures of earnings per share as described in Note 2 to which the date is December 14, 2005 relating to the consolidated financial statements of Terremark Worldwide, Inc., which appears in this Form 10K.

/s/ PricewaterhouseCoopers LLP

Miami, Florida
June 14, 2006

  EX-23.2 5 g01922exv23w2.htm CONSENT OF KPMG LLP

EXHIBIT 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
Terremark Worldwide, Inc.:

We have issued our reports dated June 14, 2006, with respect to the consolidated financial statements of Terremark Worldwide, Inc. and subsidiaries, Terremark Worldwide, Inc. and management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Terremark Worldwide, Inc. and subsidiaries, included in the 2006 Annual Report to Stockholders of Terremark Worldwide, Inc. and subsidiaries. We hereby consent to the incorporation by reference in this Annual Report on Form 10-K of Terremark Worldwide, Inc. and subsidiaries of the aforementioned reports. We consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-118369, 333-98331 and 333-132995) and on Form S-3 (Nos. 333-123775, 333-102286, 333-121133 and 333-127622).

/s/ KPMG LLP

Miami, Florida

June 14, 2006

EX-23.1

Consent of PricewaterhouseCoopers LLP

EX-23.2

Consent of KPMG LLP

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Manuel D. Medina, certify that:

1.	I have reviewed this annual report on Form 10-K 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 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 functions):

(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.

Date: June 14, 2006	/s/ Manuel D. Medina
	Chairman, President and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Jose A. Segrera, certify that:

1.	I have reviewed this annual report on Form 10-K 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 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 functions):

(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.

Date: June 14, 2006	/s/ Jose A. Segrera
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

EX-32.1

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 annual report on Form 10-K for the fiscal year ended March 31, 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.

Date: June 14, 2006	/s/ Manuel D. Medina
	Chairman, President and Chief Executive Officer
	(Principal Executive Officer)

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT
TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Jose 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 annual report on Form 10-K for the fiscal year ended March 31, 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.

Date: June 14, 2006	/s/ Jose A. Segrera
	Chief Financial Officer
	(Principal Financial and Accounting Officer)