##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




---

Form 10-K

|  |  |                                                                                             
|- |  | --------------------------------------------------------------------------------------------
|þ |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
| 
|  |  | For the fiscal year ended March 31,
    2004                                                
| 
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-22520



---

Terremark Worldwide, Inc.

(Exact Name of Registrant as Specified in Its
Charter)


|                                                                   |  |                                      
|------------------------------------------------------------------ |  | -------------------------------------
|Delaware                                                           |  | 52-1981922                           
|(State or Other Jurisdiction of
    Incorporation or Organization) |  | (IRS Employer
    Identification No.)
|2601 S. Bayshore Drive, Miami, Florida
    33133                  
|(Address of Principal Executive Offices,
    Including Zip Code)  

Registrants telephone number, including
area code:

(305) 856-3200


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

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

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

NONE




---

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

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

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

The aggregate
market value of the registrants common stock held by
non-affiliates of the registrant as of the last business day of
the registrants most recently completed second fiscal
quarter was approximately $116,000,000, based on the closing
market price of the registrants common stock ($0.70) as
reported by the American Stock Exchange on such date.

The number of
shares outstanding of the registrants common stock, par
value $0.001 per share, as of June 4, 2004 was
366,524,531.



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TABLE OF CONTENTS

|                                        |          |  |                                                                                                                      |          |  |    | 
|--------------------------------------- | -------- |  | -------------------------------------------------------------------------------------------------------------------- | -------- |  | -- | 
|                                        |          |  |                                                                                                                      | Page No.
|                                        |          |  |                                                                                                                      |         
|PART I                                  |          |  | l                                                                                                                    |         
|                                        | ITEM  1  |  | BUSINESS                                                                                                             |          |  | 2  | 
|                                        | ITEM  2  |  | PROPERTIES                                                                                                           |          |  | 10 | 
|                                        | ITEM  3  |  | LEGAL PROCEEDINGS                                                                                                    |          |  | 10 | 
|                                        | ITEM  4  |  | SUBMISSION OF MATTERS TO A
    VOTE OF SECURITY HOLDERS                                                              |          |  | 11 | 
|PART II                                 |          |  | 11                                                                                                                   |         
|                                        | ITEM  5  |  | MARKET FOR REGISTRANTS
    COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
    OF EQUITY SECURITIES |          |  | 11 | 
|                                        | ITEM  6  |  | SELECTED FINANCIAL DATA                                                                                              |          |  | 13 | 
|                                        | ITEM  7  |  | MANAGEMENTS DISCUSSION
    AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                            |          |  | 14 | 
|                                        |          |  | RISK FACTORS                                                                                                         |          |  | 32 | 
|                                        | ITEM  7A |  | QUANTITATIVE AND QUALITATIVE
    DISCLOSURES ABOUT MARKET RISK                                                       |          |  | 34 | 
|                                        | ITEM  8  |  | FINANCIAL STATEMENTS AND
    SUPPLEMENTARY DATA                                                                      |          |  | 35 | 
|                                        | ITEM  9  |  | CHANGES IN AND DISAGREEMENTS
    WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                             |          |  | 35 | 
|                                        | ITEM  9A |  | CONTROLS AND PROCEDURES                                                                                              |          |  | 35 | 
|                                        | ITEM  9B |  | OTHER INFORMATION                                                                                                    |          |  | 36 | 
|PART III                                |          |  | 36                                                                                                                   |         
|                                        | ITEM  10 |  | DIRECTORS AND EXECUTIVE
    OFFICERS OF THE REGISTRANT                                                               |          |  | 36 | 
|                                        | ITEM  11 |  | EXECUTIVE COMPENSATION                                                                                               |          |  | 40 | 
|                                        | ITEM  12 |  | SECURITY OWNERSHIP OF
    CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
    MATTERS               |          |  | 43 | 
|                                        | ITEM  13 |  | CERTAIN RELATIONSHIPS AND
    RELATED TRANSACTIONS                                                                   |          |  | 46 | 
|                                        | ITEM  14 |  | PRINCIPAL ACCOUNTANT FEES
    AND SERVICES                                                                           |          |  | 47 | 
|PART IV                                 |          |  | 48                                                                                                                   |         
|                                        | ITEM  15 |  | EXHIBITS, FINANCIAL
    STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                                                  |          |  | 48 | 
|Employment Agreement - Jamie Dos Santos
|Employment Agreement - Marvin Wheeler  
|Subsidiaries of the Company            
|Section 302 CEO Certification          
|Section 302 CFO Certification          
|Section 906 CEO Certification          
|Section 906 CFO Certification          



1



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##### Table of Contents






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

On June 14, 2004, Terremark privately placed
$75 million in aggregate principal amount of 9% Senior
Convertible Notes due June 15, 2009. We plan to utilize the
net proceeds from this offering to pay all of our outstanding
debt, for possible acquisitions and for general corporate
purposes, including working capital and capital expenditures.
The notes are convertible at the option of the holders into our
common stock at $1.25 per share. See Managements
Discussion and Analysis  Liquidity and Capital
Resources for the impact of this transaction on our
financial condition.

On May 17, 2004, we provided certain
debenture holders with notice of our intent to redeem
$25.0 million of our 10% convertible debentures and
$2.8 million of our 13.125% convertible debentures,
effective May 31, 2004. As of May 31, 2004, all of the
holders of our 10% convertible debentures and $2.5 million
in principal of our 13.125% convertible debentures opted to
convert their debentures into an aggregate of 54,726,427 shares
of our common stock.

The following table shows our capitalization as
of March 31, 2004 and as adjusted to give effect to
$75 million of proceeds from this offering and the
conversion to equity of $27.5 in principal of our convertible
debentures:

2



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##### Table of Contents



|                                                    |                                          |           |              |             |   |             |             |     |  |   |              |            | 
|--------------------------------------------------- | ---------------------------------------- | --------- | ------------ | ----------- | - | ----------- | ----------- | --- |  | - | ------------ | ---------- | 
|                                                    |                                          | Actual    |              | Adjustments |   | As Adjusted
|                                                    |                                          |           |              |             |   |            
|                                                    |                                          |          
|                                                    |                                          | Unaudited
|Cash and cash equivalents                           |                                          | $         | 4,400,000    |             |   | $           | 24,100,000  | (1) |  | $ | 28,500,000   |           
|                                                    |                                          |           |              |             |   |             |             |     |  |   |              |           
|                                                   
|Notes payable                                       |                                          |           | 40,500,000   |             |   |             | (40,500,000 | )   |  |   |             |           
|Convertible debt                                    |                                          |           | 37,100,000   |             |   |             | (37,100,000 | )   |  |   |             |           
|Unsecured senior notes                              |                                          |           |             |             |   |             | 75,000,000  |     |  |   | 75,000,000   |           
|Series H redeemable convertible preferred
    stock |                                          |           | 600,000      |             |   |             |             |     |  |   | 600,000      |           
|                                                    |                                          |           |              |             |   |             |             |     |  |   |              |           
|                                                    | Total debt                               |           | $            | 78,200,000  |   |             |             |     |  |   | $            | 75,600,000 | 
|                                                    |                                          |           |              |             |   |             |             |     |  |   |              |           
|Series G convertible preferred stock                |                                          | $         |             |             |   |             |             |     |  | $ |             |           
|Series I convertible preferred stock                |                                          |           |             |             |   |             |             |     |  |   |             |           
|Common stock                                        |                                          |           | 300,000      |             |   |             | 100,000     | (3) |  |   | 400,000      |           
|Paid in capital                                     |                                          |           | 213,600,000  |             |   |             | 27,900,000  | (3) |  |   | 241,500,000  |           
|Accumulated deficit                                 |                                          |           | (236,800,000 | )           |   |             | 3,200,000   | (2) |  |   | (233,600,000 | )         
|Common stock warrants                               |                                          |           | 3,600,000    |             |   |             |             |     |  |   | 3,600,000    |           
|Common stock options                                |                                          |           | 1,500,000    |             |   |             |             |     |  |   | 1,500,000    |           
|Notes receivable  related party                    |                                          |           | (5,000,000   | )           |   |             |             |     |  |   | (5,000,000   | )         
|                                                    |                                          |           |              |             |   |             |             |     |  |   |              |           
|                                                    | Total stockholders
    (deficit) equity |           | $            | (22,800,000 | ) |             |             |     |  |   | $            | 8,400,000  | 
|                                                    |                                          |           |              |             |   |             |             |     |  |   |              |           






|    |                                    
|--- | -----------------------------------
|(1) | Reflects the following adjustments:

| |     |                                                                                                                                               
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Net proceeds of $70.3 million from the offering,
    net of $4.7 million in debt issuance costs.                                              
| | (b) | Collection of the $2.4 million note receivable
    related to the Series I convertible preferred stock.                                       
| | (c) | Payment of all of our outstanding notes payable,
    plus accrued interest amounting to $37.2 million.                                        
| | (d) | Payment of the remaining $.3 million balance of
    13.125% convertible debentures.                                                           
| | (e) | Payment of all our $11.1 million outstanding 13%
    convertible debentures, including a 2% early redemption premium
    and accrued interest.

|    |                                    
|--- | -----------------------------------
|(2) | Reflects the following adjustments:

| |     |                                                                                         
| | --- | ----------------------------------------------------------------------------------------
| | (a) | $4.3 million of unamortized debt restructuring
    gain.                                
| | (b) | $.9 million of unamortized beneficial conversion
    feature.                           
| | (c) | $.2 million write-off of unamortized debt
    issuance costs for debt paid or converted.

|    |                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------
|(3) | Reflects the conversion to common stock of $27.5
    million of our convertible debentures plus $.5 million in
    accrued interest.

Overview

Terremark Worldwide, Inc. operates Internet
Exchange Point facilities at strategic locations in Miami,
Florida; Santa Clara, California; and Sao Paulo, Brazil,
from which we assist users of the Internet and communications
networks in communicating with other users and networks. Our
primary facility is the NAP of the Americas located in Miami,
where as of June 14, 2004 we have over 155 customers
including over 80 network service providers. We generate
revenue by providing exchange point, colocation and managed
services to carriers, Internet service providers, network
service providers, government entities, multi-national
enterprises and other end users.

Internet Exchanges, or IXs, 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
IXs comes from telecommunications carriers, Internet
service providers and large telecommunications and Internet
users. Tier-1 IXs 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.

Initially, four IXs  in New
York, Washington, D.C., Chicago, and San
Francisco  were created and supported by the National
Science Foundation as part of the transition from the United
States government-

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financed Internet to a commercially operated
Internet. Since that time, privately owned IXs have been
developed, including the NAP of the Americas.


Our Internet Exchange Point facilities are
carrier-neutral. We are not owned or controlled by, nor
affiliated with, any telecommunications carrier. Rather, we
enable our customers to freely choose from among the many
carriers available at our Internet Exchange Point facilities. We
believe that our carrier neutrality and the diversity of network
service providers present at our facilities provides us with a
competitive advantage when compared to carrier-operated network
access points where customers are limited to conducting business
with one carrier.

We generate revenue by providing our customers
with:



| |   |                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the site and platform they need to exchange
    Internet and data traffic;                                                                                                                                   
|
| |  | related professional and managed services; and                                                                                                                                                               
|
| |  | space to house their equipment and their network
    facilities in order to be close to the Internet and data traffic
    exchange connections that take place at our Internet Exchange
    Point facilities.

Currently, our customers include
telecommunications carriers such as AT&T, MCI, Qwest and
Sprint, enterprises such as Bacardi USA, Intrado, and Steiner
Leisure, content providers such as Yahoo! and Akamai, and
government agencies including the Diplomatic Telecommunications
Services Programming Office (DTSPO, a division of the United
States Department of State), the United States Southern Command
and the City of Coral Gables.

Prior to April 2000, we were engaged in the
development, sales, leasing, management and financing of retail,
high-rise office buildings, mixed-use projects, condominiums,
hotels and government-assisted housing. We were also involved in
a number of ancillary businesses that complemented our
development operations. Specifically, we engaged in offering
financial services, property management, construction
management, condominium hotel management, residential and
commercial leasing brokerage, and advisory services. By
March 31, 2002, we had exited non-core real estate
activities, real estate development, property management,
financing and the ancillary businesses that complimented these
real-estate development operations. Our remaining real estate
activities include technology construction work and management
of the property where the NAP of the Americas is located.

Our principal executive office is located at
2601 S. 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 IXs.

Since the beginning of the Internet, major
traffic aggregation and exchange points have developed around
the world. The first four Tier-1 IXs 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, Chicago and San Francisco.
These IXs were built with sponsorship from the National
Science Foundation in order to promote Internet development and
used the existing infrastructures of telecommunication
companies, to

4



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which ownership of the IXs was eventually
transferred. These four Tier-1 IXs offered only
connectivity services.


We operate Internet Exchange Point facilities at
strategic locations in Miami, Florida; Santa Clara, California;
and Sao Paulo, Brazil, from which we assist users of the
Internet and large communications networks in communicating with
other users and networks. Our primary facility is the NAP of the
Americas located in Miami, where we have over 155 customers
including over 80 network service providers. We generate revenue
by providing exchange point, colocation and managed services to
carriers, Internet service providers, network service providers,
government entities, multi-national enterprises and other end
users. Using the airport analogy again, customers at our
facilities exchange and redirect Internet and data traffic to
multiple destinations, and purchase various managed services,
similar to what happens in airport terminals with the provision
of fuel, maintenance, spare parts and food.

Strategy

We have created a new business model for
IXs by providing customers with:



| |   |                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------
| |  | the connectivity of a world-class IX in a
    carrier-neutral facility;                                                                    
|
| |  | highly conditioned space within which to locate
    equipment next to other customers; and                                                 
|
| |  | managed services meeting the design and
    operational specifications of multinational carriers,
    enterprises and government customers.

Our strategy is to leverage our major
connectivity hubs to sell services to customers within and
outside of our Internet Exchange Point facilities. For example,
we have been retained by the United States Department Diplomatic
Telecommunications Service Program Office, under three publicly
awarded contracts, to design, implement and manage the system
which will permit designated overseas locations to have global
Internet access. Although the NAP of the Americas serves as the
hub to manage this solution, we are leveraging our international
carrier relationships to provide this customer with connectivity
and technology solutions to communicate with
U.S. government locations around the world.

Our business model for international expansion
requires limited capital investment and is best compared to that
of a management company model in the hospitality industry. The
model contemplates that a local in-country partner would own and
fund the development and build-out of the facility in which our
NAP would be located. The facility would ideally be a new
development built to our exact specifications (as is the case in
Miami), but it may be located in an existing building that is
retrofitted to conform to those specifications. We intend to
control the operations of particular the central points of
connectivity, known as meet point rooms, within the facility. We
have implemented this expansion model in both Sao Paulo, Brazil
and Madrid, Spain.



| |                       
| | ----------------------
| | International Presence

In February 2002, we entered into an agreement
with Fundacao de Amparo a Pesquisa do Estado de Sao Paulo, the
research foundation for the State of Sao Paulo, known as
FAPESP, to operate and manage the IX created by FAPESP, which we
have renamed the NAP do Brasil. Pursuant to the twenty year
agreement, FAPESP turned over the network access point to
Terremark, which we moved in February 2004 to permanent
facilities in an existing data center where we have contractual
control of the data centers meet point room. The NAP do
Brasil is modeled after the operational design of the NAP of the
Americas. Pre-existing FAPESP customers have the right to
continue to receive services at the then existing levels without
payment until February 2004. FAPESP will receive 6% of the
revenue generated by the NAP do Brazil for the first five years
of operation, 5% during the following five years, and 1% during
the last ten years. The term may be extended for an additional
ten-year period, during which FAPESP would again receive 1% of
the revenues. For the year ended March 31, 2004, our
Brazilian operations generated losses of approximately $824,000
on revenues of approximately $160,000.

In June 2002, we entered into an exclusive
agreement with the Comunidad Autonoma de Madrid to develop and
operate carrier-neutral network access points in Spain. As part
of that agreement, the parties

5



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formed NAP de las Americas  Madrid
S.A. to own and operate carrier-neutral IXs in Spain,
modeled after the NAP of the Americas. The shareholders are the
Comunidad through its Instituto Madrileno de
Desarrollo  IMADE, the Camara Oficial de Comercio e
Industria de Madrid, Red Electrica Telecomunicaciones, S.A.,
Telvent Sistemas y Redes S.A., a subsidiary of Abengoa S.A., and
Centro de Transportes de Coslada, S.A. (CTC). At the time the
NAP de las Americas  Madrid S.A. was formed, we owned
1% of its equity, which we subsequently increased to 10%. In May
2004, we purchased the 20% of this entity owned by Telvent
Sistemas y Redes S.A. for approximately $550,000, and exercised
our option to purchase the 30% of the interest owned by the
Comunidad (CTC and IMADE) for approximately $1.2 million.
The Camara has decided to retain its 20% interest. We expect to
close on the option exercise on or before June 24, 2004. As
a result of these transactions, we will have a 60% equity
interest in NAP de las Americas  Madrid.


We provided the technical and operational
know-how for the development of an interim NAP de las
Americas  Madrid which became operational in July
2002. During the year ended March 31, 2004, we recognized
approximately $43,000 in revenues from services billed to the
NAP de Las Americas  Madrid S.A.

In May 2004, we entered into an agreement with
Global Switch LLP to move the NAP de las
Americas  Madrid to a facility in Madrid owned by
Global Switch LLP.

With our operations in Miami, Santa Clara and Sao
Paulo, and the Madrid facility expected to be operational by
July 2004, we will have Internet Exchange Point facilities
located at major crossroads of Internet and data traffic.
PriMetrica (formerly Telegeography), researcher and publisher of
international telecom statistics, in its Global Internet
Geography 2004, ranked Miami, the home of the NAP of the
Americas, as the number one international Internet Hub City for
Latin America and the Caribbean, Sao Paulo, where the NAP do
Brasil is located, is ranked second. The San Francisco Bay area,
where our NAP of the Americas/West facility is located, and
Madrid, where our NAP de las Americas  Madrid is
being deployed, are ranked fifth and twenty-first, respectively,
in the Top 50 Interregional Internet Hub Cities in the
world. We believe the Madrid network access point will also
benefit from Madrids strategic geographic location by
serving as an Internet gateway to the European Union, North
Africa and the Americas.

We continue to explore other locations and have
targeted additional locations in Europe, the Middle East and
Mexico as a prospective hub locations.

Value Proposition

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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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. Locating equipment at a data center is known
    in the industry as colocation.                                                                      
|
| |  | Connectivity:Our
    customers can access any of the more than 80 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, and creates a new paradigm,
    connecting all participants at a distance of zero miles.
|
| |  | Service Level Agreements:We guarantee our customers 100% power
    availability and environmental stability at the NAP of the
    Americas.                                                                                                                                                                                                                                                                                     
|
| |  | 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.                                                                                                                                       

6



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.

Furthermore, given the heightened focus on
homeland security, we are focusing on meeting the security
sensitive technology needs of federal, state and local
governments, as well as large enterprises. Our value proposition
to this sector revolves around our security, critical mass of
Internet and data connectivity and carrier neutrality.

Consequently, we have built a team of employees
with federal government security clearances that, as of
June 1, 2004, represented approximately 15% of our employee
base. In addition, our facility in Miami can provide Secured
Compartmentalized Information Facility certified space to
customers that require that type of specialized environment.

Services

We currently offer the following core services:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Exchange Point Service:Our facilities provide a service
    called Exchange Point Service, which is designed to facilitate
    both peering and the purchase of transit, among customers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | 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. This facility is custom designed to exceed
    industry standards for electrical and environmental systems. In
    addition, it offers 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 trunks from multiple
    sources.
|
| | Managed Services:Our managed services are designed to
    support our customers mission-critical needs that focus on
    producing faster network response times. We currently offer the
    following managed services:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Add/Drop Multiplexer Service This service provides
    customers maximum interconnection efficiency using operational
    support systems to provide rapid provisioning, monitoring and
    management of customer circuits.                                                                                                                                                                                   
|
| |  | Network Deployment and Relocation
    Services This service
    leverages our team of engineers to assist customers with the
    deployment and relocation of critical systems both within and
    outside our facilities. Our team will identifies, schedules,
    document and monitors activities required for successful
    relocation of equipment as part of the overall network
    relocation project.
|
| |  | Engineering
    Services We offer facility
    and equipment design and engineering services, including
    structural, mechanical, electrical and network systems, all
    provided by our staff of industry certified engineers.                                                                                                                                                                             
|
| |  | 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.                        
|
| |  | Managed Router
    Service Utilizing the
    large mass of carriers at our facilities, this service offers
    customers cost savings and convenience by providing Internet
    access without the need to purchase or manage an Internet
    router. Customer network performance is optimized and multi-home
    configurations offer increased redundancy and reliability.                                  

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Network Management
    Services This service
    assists customers in achieving maximum uptime by enlisting our
    engineers at our facilitys Network Operations Center to
    monitor and manage their equipment located within and outside
    the facility.                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Systems Monitoring
    Services This service
    assists customers in achieving maximum uptime by enlisting
    engineers to monitor their equipment located at our facilities
    or anywhere else on their network.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Professional Staging
    Service This service turns
    the implementation of any network or telecom environment into a
    simple plug and play process. Customers ship their equipment to
    the NAP or alternate destination for installation, and our
    staging services team gathers and inspects all the equipment
    components. The team then assembles, configures, tests, and
    completes an inventory of the equipment, reducing the time
    required for a customer to install and load final configurations
    on site. The service also ensures that all ordered components
    are configured and installed properly in a controlled and stable
    environment.
|
| |  | Reference
    Timing This service allows
    our customers to save on equipment costs, installation times and
    maintenance of their network timing reference by using our on
    site Stratum source.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Remote Hands
    Assistance Remote Hands
    assists customers that need to remotely access their equipment
    to perform simple troubleshooting or minor maintenance tasks on
    a 24 hour per day, 7 day per week basis that does not
    require tools or equipment. Remote Hands services are available
    on demand or per contract.                                                                                                                                                                                                                                                                                                                                           
|
| |  | Smart Hands
    Assistance Smart Hands
    enhances the Remote Hands service with more complex remote
    assistance using industry certified engineers for
    troubleshooting and maintenance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Turn Key
    Solution Our staff can
    provide full integration activities for all aspects of a
    turn key 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.                                                                                                                                                                   

Customers

Our customer contracts have terms of between one
year and twenty years, with an average of 2.5 years. Our
customer contracts do not allow for early termination before the
stated maturity date and typically provide for penalties if they
are cancelled prior to expiration. Currently we have over 155
customers. The U.S. Federal government and Latin American
Nautilus USA Inc. accounted for approximately $2.4 million
and $1.7 million, or 14% and 10%, of total data center
services revenues, respectively, for the year ended
March 31, 2004. Latin American Nautilus USA Inc. and
Progress Telecom accounted for approximately $1.4 million
(or 14%) and $1.0 million (or 10%) in data center revenues,
respectively, for the year ended March 31, 2003.

Sales and Marketing

Sales.We
sell our products and services primarily through our direct
sales force, which we organize by industry sectors such as
carriers, enterprises, government and educational. We also have
sales representatives at our facilities in Santa Clara,
California and in San Paulo, Brazil, and expect to have a sales
representative in Madrid, Spain by July 2004. We also have a
channel marketing program to market our services 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.

8



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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

Our NAPs are neither a traditional data center,
nor a traditional IX. 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, an
unlikely event in todays telecommunications environment.

We believe that carriers and Internet service
providers have no need to be in two different Tier-1 IXs
serving the same geographic area. Therefore, to the extent that
carriers are located in our facilities, and have already
invested significant funds to establish their presence at those
facilities, this is an incentive for them to remain our
customers. In addition, a competing Tier-1 IX would require the
backing of carriers and Internet service providers serving this
area, many of which are already our customers.

However, our current and potential competition
includes:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Internet data centers operated by established
    U.S., Brazilian and Spanish communications carriers such as
    AT&T, Qwest, 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
    choice of carrier and generally require capacity minimums as
    part of their pricing structures. Our NAPs 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. IXs such as MAE West and carrier
    operated IXs.IXs,
    generally operated by carriers, are typically older facilities
    and 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 Globix.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 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. We believe that this creates a
    natural barrier to entry to competitors, as our large customers
    would likely not incur the expense to relocate or deploy similar
    infrastructure in other centers within our geographic regions.
    For this reason, we believe that we have positioned our company
    as a leader in carrier neutral exchange points connecting the
    United States and Europe to Latin American markets.

9



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Employees

As of March 31, 2004, we had
145 full-time employees in the United States. Of these
employees, 75 were in data center operations, 20 were
in sales and marketing and 50 were in general and
administrative. We also have four sales and administrative
representatives in Brazil.

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.

Available Information

Our Internet website address is
www.terremark.com. We make available free of charge, on or
through our website, our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K, and amendments to these reports, as soon as
reasonably practicable after we electronically file such
material with, or furnish such material to, the Securities and
Exchange Commission, or SEC. The SEC maintains an Internet site
that contains reports, proxy and information statements and
other information regarding issuers that file electronically
with the SEC at http://www.sec.gov. We also make available on
our website other reports filed with the SEC under the
Securities Exchange Act of 1934, as amended, including proxy
statements and reports filed by officers and directors under
Section 16(a) of that Act. These reports may be found by
selecting the option entitled SEC FILINGS in the
INVESTOR RELATIONS section on our website.
Information contained in or connected to our website is not part
of this report.






|         |            
|-------- | -----------
|ITEM  2. | PROPERTIES.

We lease 120,000 square feet at the Technology
Center of the Americas (TECOTA) for the NAP of the
Americas. The term of the lease commenced in October 2001 and is
for 20 years. Monthly base rent is approximately $216,000.
We are also responsible for our pro rata share of common area
maintenance expenses and real estate taxes, which amount to
approximately $40,000 per month. On November 3, 2003, we
entered into an agreement to lease an additional 120,000 square
feet of space in the third floor of TECOTA, and extend our
existing lease in the second floor to co-terminate with the
third floor lease on May 31, 2025. Annual base rent for the
third floor is approximately $2.4 million. Monthly base
rent payments will commence in April 2005. We will also be
responsible for our pro rata share of common area maintenance
expenses and real estate taxes.

In Sao Paulo, Brazil, we lease approximately
5,500 feet at a Hewlett Packard data center. Annual rent is
approximately $50,000. The term of the lease commenced in
October 2003 and is for 18 years.

In Santa Clara, California, we lease
approximately 40,000 square feet for a colocation facility. The
term of the lease commenced in January 2001 and is for
20 years. Annual rent is approximately $1,500,000. We are
responsible for real estate taxes and property and casualty
insurance expenses which in the aggregate amount to
approximately $46,000 annually.

We also lease approximately 14,660 square feet
for our corporate office in Miami, Florida. The term of the
lease commenced in April 2000 and is for five years. Annual rent
is approximately $440,000. We are also responsible for our share
of common area maintenance expenses and real estate taxes.

Additionally, we lease approximately 12,000
square feet for office space in Miami, Florida. Annual rent is
approximately $220,000. The term of the lease commenced in
February 2001 and is for five years.






|         |                   
|-------- | ------------------
|ITEM  3. | LEGAL PROCEEDINGS.

We are not currently subject to any litigation
which individually or in the aggregate could reasonably be
expected to have a material adverse effect on our financial
condition or results of operations.

10



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|         |                                                         
|-------- | --------------------------------------------------------
|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, 2004.




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. As of May 31, 2004, we had the authority to issue:



| |   |                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 500,000,000 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 20 shares are
    designated as Series G Convertible Preferred Stock, 294
    shares are designated as Series H Convertible Preferred
    Stock, and 400 shares of Series I Convertible Preferred
    Stock.

As of May 31, 2004:



| |   |                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 311,798,104 shares of our common stock were
    outstanding;                                                                                                                                                                                                               
|
| |  | 20 shares of our Series G Convertible
    Preferred Stock were outstanding and held by an entity in which
    Manuel Medina, our Chairman and Chief Executive Officer, owns a
    50% interest and could have been converted into 2,163,809 shares
    of our common stock;
|
| |  | 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 1,000 shares of our common stock; and                                       
|
| |  | 400 shares of our Series I Convertible
    Preferred Stock were outstanding. Each share of Series I
    Convertible Preferred Stock may be converted into 33,334 shares
    of our common stock.                                                                           

We believe there are approximately 8,800
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 2004   |  |       
|Quarter Ended      |  | High   |      | Low
|                   |  |        |      |    
|June 30, 2003      |  | $      | 1.21 |     |  | $ | 0.33 | 
|September 30, 2003 |  |        | 1.00 |     |  |   | 0.53 | 
|December 31, 2003  |  |        | 0.78 |     |  |   | 0.55 | 
|March 31, 2004     |  |        | 0.94 |     |  |   | 0.60 | 

|                   |  |        |      |     |  |   |      | 
|------------------ |  | ------ | ---- | --- |  | - | ---- | 
|                   |  |       
|                   |  | Prices
|Fiscal Year 2003   |  |       
|Quarter Ended      |  | High   |      | Low
|                   |  |        |      |    
|June 30, 2002      |  | $      | 0.73 |     |  | $ | 0.25 | 
|September 30, 2002 |  |        | 0.77 |     |  |   | 0.31 | 
|December 31, 2002  |  |        | 0.71 |     |  |   | 0.22 | 
|March 31, 2003     |  |        | 0.49 |     |  |   | 0.22 | 

Dividend Policy

Holders of our common stock are entitled to
receive dividends or other distributions when and if declared by
our board of directors. The right of our board of directors to
declare dividends, however, is subject to any

11



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rights of the holders of other classes of our
capital stock and the availability of sufficient funds under
Delaware law to pay dividends. In accordance with a credit
facility agreement with a financial institution, we may not pay
cash or stock dividends without the written consent of the
financial institution. See Managements Discussion
and Analysis  Liquidity and Capital Resources
regarding subsequent events.


Recent Sales of Unregistered
Securities

In May 2004, we issued three senior secured
promissory notes in favor of Veritas High Yield Arbitrage I
Fund, LLC, Veritas High Yield Arbitrage II Fund, LLC, and
Veritas High Yield Arbitrage Fund, (Bermuda) Ltd. (collectively
the Lenders) for the aggregate amount of
$5.2 million. The notes accrue interest at 12% per annum,
are paid monthly based on original face amount, and mature on
October 29, 2004, with prepayment permitted without penalty
after the first month. We also issued 200,000 warrants in favor
of the lenders with a strike price of $0.01, which expire two
years after the effective date of the registration statement for
the underlying common stock. We agreed to file a registration
statement covering the shares of common stock underlying the
warrants and to use our best efforts to cause the registration
statement to become effective by August 15, 2004. In the
event the registration statement is not declared effective on or
before August 15, 2004, we must deposit 200,000 fully
registered shares of common stock into escrow. The notes are
secured by 10 million shares of our common stock placed in
escrow by certain of our stockholders, as well as two of our
directors, Guillermo Amore and Miguel Rosenfeld, including
several entities beneficially owned or controlled by them. The
shares pledged as security are subject to increase if at any
time prior to repayment in full of each note, the ten day moving
average price of our common stock is less than 80% of the
trailing ten day volume weighted average price prior to closing
(as appropriately adjusted for any stock dividends,
recapitalizations or similar events), or if we merge,
consolidate or undergo a recapitalization, or issue additional
securities. We have executed an indemnification agreement in
favor of each of the individuals and entities pledging shares of
our common stock as security in connection with each of the
notes. We paid a finders fee of $130,000 to McMahan
Securities Co. L.P. in connection with of the issuance of notes
and warrants to the lenders. There is certain common ownership
between the lenders and McMahan Securities Co. L.P.

On March 31, 2004, we issued 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 our common stock. We have collected all amounts due
under the promissory note. The Series I Preferred Stock is
convertible into shares of our 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 quarterly, at our
discretion, in shares of our common stock or cash. We have the
right to redeem the Series I Preferred Stock at $25,000 per
share plus accrued dividends at any time after December 31,
2004.

On April 30, 2003, we issued 10%
Subordinated Secured Convertible Debentures due April 30,
2006 for an aggregate principal amount of $25.0 million.
The debentures are convertible into shares of our common stock
at $0.50 per share. Interest is payable quarterly beginning
July 31, 2003. The debentures were issued in exchange for
$10.3 million in cash, $9.5 million in a promissory
note due in full May 30, 2003 and $5.2 million of
notes payable converted to the subordinated debentures. Included
in the $5.2 million is $2.0 million of cash received
in March 2003 in anticipation of the debenture transaction.

These offers and sales of our common stock were
exempt from the registration requirements of the Securities Act
of 1933, as amended as the common stock was sold to accredited
investors pursuant to Regulation D and to non-United States
persons in offshore transactions pursuant to Regulation S.

12



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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 Notes thereto included elsewhere herein.

|                                                   |                |                                              |         |        |  |      |         |        |  |      |         |        |  |   |          |        |  |   |        |        | 
|-------------------------------------------------- | -------------- | -------------------------------------------- | ------- | ------ |  | ---- | ------- | ------ |  | ---- | ------- | ------ |  | - | -------- | ------ |  | - | ------ | ------ | 
|                                                   |                |                                             
|                                                   |                | Twelve Months Ended March 31,               
|                                                   |                |                                             
|                                                   |                | 2004                                         |         | 2003   |  | 2002 |         | 2001   |  | 2000
|                                                   |                |                                              |         |        |  |      |         |        |  |     
|                                                   |                |                                             
|                                                   |                | (dollars in thousands except per share data)
|Results of operations:                             |                |                                              |         |        |  |      |         |        |  |      |         |        |  |   |          |        |  |   |        |       
|Data center                                        |                | $                                            | 17,034  | (3)    |  | $    | 11,033  | (3)    |  | $    | 3,216   |        |  | $ | 253      |        |  | $ |       |       
|Real estate services                               |                |                                              | 1,179   |        |  |      | 3,661   |        |  |      | 12,656  |        |  |   | 39,894   |        |  |   | 15,390 |       
|                                                   |                |                                              |         |        |  |      |         |        |  |      |         |        |  |   |          |        |  |   |        |       
|                                                   | Total revenue  |                                              |         | 18,213 |  |      |         | 14,694 |  |      |         | 15,872 |  |   |          | 40,147 |  |   |        | 15,390 | 
|                                                   |                |                                              |         |        |  |      |         |        |  |      |         |        |  |   |          |        |  |   |        |       
|Data center operations expenses                    |                |                                              | 16,413  |        |  |      | 11,235  |        |  |      | 11,231  |        |  |   | 1,223    |        |  |   |       |       
|Construction contract expenses                     |                |                                              | 918     |        |  |      | 2,968   |        |  |      | 7,398   |        |  |   | 20,347   |        |  |   | 555    |       
|Other expenses                                     |                |                                              | 23,373  |        |  |      | 41,718  |        |  |      | 54,615  |        |  |   | 39,950   |        |  |   | 20,868 |       
|                                                   |                |                                              |         |        |  |      |         |        |  |      |         |        |  |   |          |        |  |   |        |       
|                                                   | Total expenses |                                              |         | 40,704 |  |      |         | 55,921 |  |      |         | 73,244 |  |   |          | 61,520 |  |   |        | 21,423 | 
|                                                   |                |                                              |         |        |  |      |         |        |  |      |         |        |  |   |          |        |  |   |        |       
|Loss from continuing operations                    |                |                                              | (22,491 | )      |  |      | (41,227 | )      |  |      | (57,372 | )      |  |   | (21,373  | )      |  |   | (6,033 | )     
|Loss from discontinued operations                  |                |                                              |        |        |  |      |        |        |  |      |        |        |  |   | (82,627  | )      |  |   |       |       
|Non-cash preferred dividend                        |                |                                              | (1,158  | )      |  |      | (160    | )      |  |      | (160    | )      |  |   | (160     | )      |  |   | (160   | )     
|Net loss attributable to common shareholder        |                | $                                            | (23,649 | )      |  | $    | (41,387 | )      |  | $    | (57,532 | )      |  | $ | (104,160 | )      |  | $ | (6,193 | )     
|                                                   |                |                                              |         |        |  |      |         |        |  |      |         |        |  |   |          |        |  |   |        |       
|Loss from continuing operations per common share   |                | $                                            | (0.08   | )      |  | $    | (0.18   | )      |  | $    | (0.29   | )      |  | $ | (0.11    | )      |  | $ | (0.09  | )     
|Loss from discontinued operations per common share |                |                                              |        |        |  |      |        |        |  |      |        |        |  |   | (0.44    | )      |  |   |       |       
|                                                   |                |                                              |         |        |  |      |         |        |  |      |         |        |  |   |          |        |  |   |        |       
|Net loss per common share                          |                | $                                            | (0.08   | )      |  | $    | (0.18   | )      |  | $    | (0.29   | )      |  | $ | (0.55    | )      |  | $ | (0.09  | )     
|                                                   |                |                                              |         |        |  |      |         |        |  |      |         |        |  |   |          |        |  |   |        |       
|Financial condition(5):                            |                |                                              |         |        |  |      |         |        |  |      |         |        |  |   |          |        |  |   |        |       
|Real estate inventory                              |                | $                                            |        |        |  | $    |        |        |  | $    |        |        |  | $ |         |        |  | $ | 11,797 |       
|Property and equipment, net                        |                |                                              | 53,898  |        |  |      | 54,483  |        |  |      | 61,089  |        |  |   | 25,066   |        |  |   | 1,011  |       
|Total assets                                       |                |                                              | 77,433  |        |  |      | 69,602  |        |  |      | 81,024  |        |  |   | 78,069   |        |  |   | 77,998 |       
|Long term obligations(1)(2)                        |                |                                              | 78,525  |        |  |      | 74,524  |        |  |      | 38,210  |        |  |   | 16,462   |        |  |   | 28,632 |       
|Stockholders (deficit) equity(4)                  |                |                                              | (22,720 | )      |  |      | (46,461 | )      |  |      | (49,276 | )      |  |   | 11,163   |        |  |   | 476    |       



---



|    |                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Long term obligations include convertible debt
    less current portion, deferred rent, deferred revenue, notes
    payable, less current portion, redeemable preferred stock, and
    capital lease obligations, less current portion.
|   
|(2) | Long term obligation as of March 31, 2004,
    2003 and 2002 include $500 in redeemable convertible preferred
    stock plus accrued dividends.                                                                                        
|   
|(3) | Amount includes a one-time contract termination
    fee as of March 31, 2004 and 2003 of $422 and $1,095,
    respectively.                                                                                                            
|   
|(4) | Stockholders equity as of March 31,
    2000 includes approximately $4,777 in convertible preferred
    stock.                                                                                                                        
|   
|(5) | See Managements Discussion and
    Analysis  Liquidity and Capital Resources
    regarding subsequent events.                                                                                                                      

13



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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 Notes thereto included elsewhere herein.

|                                                          |                |                                              |        |              |  |               |        |          |  |   |         |        |  |   |        |       | 
|--------------------------------------------------------- | -------------- | -------------------------------------------- | ------ | ------------ |  | ------------- | ------ | -------- |  | - | ------- | ------ |  | - | ------ | ----- | 
|                                                          |                |                                             
|                                                          |                | Three Months Ended                          
|                                                          |                |                                             
|                                                          |                | March 31,                                    |        | December 31, |  | September 30, |        | June 30,
|                                                          |                | 2004                                         |        | 2003         |  | 2003          |        | 2003    
|                                                          |                |                                              |        |              |  |               |        |         
|                                                          |                |                                             
|                                                          |                | (dollars in thousands except per share data)
|Data center(1)                                            |                | $                                            | 5,199  |              |  | $             | 4,592  |          |  | $ | 3,941   |        |  | $ | 3,302  |      
|Real estate services                                      |                |                                              | 659    |              |  |               | 273    |          |  |   | 108     |        |  |   | 139    |      
|                                                          |                |                                              |        |              |  |               |        |          |  |   |         |        |  |   |        |      
|                                                          | Total revenue  |                                              |        | 5,858        |  |               |        | 4,865    |  |   |         | 4,049  |  |   |        | 3,441 | 
|                                                          |                |                                              |        |              |  |               |        |          |  |   |         |        |  |   |        |      
|Data center operations expenses                           |                |                                              | 5,243  |              |  |               | 4,664  |          |  |   | 3,950   |        |  |   | 2,556  |      
|Construction contract expenses                            |                |                                              | 581    |              |  |               | 229    |          |  |   | 62      |        |  |   | 46     |      
|Other (income) expenses                                   |                |                                              | 5,496  |              |  |               | 9,124  |          |  |   | 10,844  |        |  |   | (2,091 | )    
|                                                          |                |                                              |        |              |  |               |        |          |  |   |         |        |  |   |        |      
|                                                          | Total expenses |                                              |        | 11,320       |  |               |        | 14,017   |  |   |         | 14,856 |  |   |        | 511   | 
|                                                          |                |                                              |        |              |  |               |        |          |  |   |         |        |  |   |        |      
|Net loss from operations                                  |                |                                              | (5,462 | )            |  |               | (9,152 | )        |  |   | (10,807 | )      |  |   | 2,930  |      
|Non-cash preferred dividend                               |                |                                              | (1,038 | )            |  |               | (40    | )        |  |   | (40     | )      |  |   | (40    | )    
|                                                          |                |                                              |        |              |  |               |        |          |  |   |         |        |  |   |        |      
|Net income (loss) attributable to common
    shareholders |                | $                                            | (6,500 | )            |  | $             | (9,192 | )        |  | $ | (10,847 | )      |  | $ | 2,890  |      
|                                                          |                |                                              |        |              |  |               |        |          |  |   |         |        |  |   |        |      
|Net income (loss) per common share                        |                | $                                            | (0.02  | )            |  | $             | (0.03  | )        |  | $ | (0.04   | )      |  | $ | 0.01   |      
|                                                          |                |                                              |        |              |  |               |        |          |  |   |         |        |  |   |        |      

|                                                          |                |                                              |        |              |  |               |         |          |  |   |        |        |  |   |        |        | 
|--------------------------------------------------------- | -------------- | -------------------------------------------- | ------ | ------------ |  | ------------- | ------- | -------- |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                                          |                |                                             
|                                                          |                | Three Months Ended                          
|                                                          |                |                                             
|                                                          |                | March 31,                                    |        | December 31, |  | September 30, |         | June 30,
|                                                          |                | 2003                                         |        | 2002         |  | 2002          |         | 2002    
|                                                          |                |                                              |        |              |  |               |         |         
|                                                          |                |                                             
|                                                          |                | (dollars in thousands except per share data)
|Data center(1)                                            |                | $                                            | 2,902  |              |  | $             | 2,557   |          |  | $ | 2,424  |        |  | $ | 3,150  |       
|Real estate services                                      |                |                                              | 84     |              |  |               | 276     |          |  |   | 1,268  |        |  |   | 2,033  |       
|                                                          |                |                                              |        |              |  |               |         |          |  |   |        |        |  |   |        |       
|                                                          | Total revenue  |                                              |        | 2,986        |  |               |         | 2,833    |  |   |        | 3,692  |  |   |        | 5,183  | 
|                                                          |                |                                              |        |              |  |               |         |          |  |   |        |        |  |   |        |       
|Data center operations expenses                           |                |                                              | 2,603  |              |  |               | 2,768   |          |  |   | 2,769  |        |  |   | 3,095  |       
|Construction contract expenses                            |                |                                              | 62     |              |  |               | 134     |          |  |   | 938    |        |  |   | 1,834  |       
|Other (income) expenses                                   |                |                                              | 9,979  |              |  |               | 14,110  |          |  |   | 9,403  |        |  |   | 8,226  |       
|                                                          |                |                                              |        |              |  |               |         |          |  |   |        |        |  |   |        |       
|                                                          | Total expenses |                                              |        | 12,644       |  |               |         | 17,012   |  |   |        | 13,110 |  |   |        | 13,155 | 
|                                                          |                |                                              |        |              |  |               |         |          |  |   |        |        |  |   |        |       
|Net loss from operations                                  |                |                                              | (9,658 | )            |  |               | (14,179 | )        |  |   | (9,418 | )      |  |   | (7,972 | )     
|Non-cash preferred dividend                               |                |                                              | (40    | )            |  |               | (40     | )        |  |   | (40    | )      |  |   | (40    | )     
|                                                          |                |                                              |        |              |  |               |         |          |  |   |        |        |  |   |        |       
|Net income (loss) attributable to common
    shareholders |                | $                                            | (9,698 | )            |  | $             | (14,219 | )        |  | $ | (9,458 | )      |  | $ | (8,012 | )     
|                                                          |                |                                              |        |              |  |               |         |          |  |   |        |        |  |   |        |       
|Net loss per common share                                 |                | $                                            | (0.04  | )            |  | $             | (0.06   | )        |  | $ | (0.04  | )      |  | $ | (0.04  | )     
|                                                          |                |                                              |        |              |  |               |         |          |  |   |        |        |  |   |        |       



---



|    |                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amount includes a one time contract termination
    fee of $130, $292 and $1,095 for the three months ended
    December 31, 2003, June 30, 2003 and June 30,
    2002, respectively.






|         |                                                                                           
|-------- | ------------------------------------------------------------------------------------------
|ITEM  7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following commentary should be read in
conjunction with the financial statements and related notes
contained elsewhere in the Annual Report on Form 10-K. The
information in this discussion contains forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements are
based upon current expectations that involve risks and
uncertainties. Any statements contained herein that are not
statements of

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##### Table of Contents



historical fact may be deemed to be
forward-looking statements. For example, the words
believes, anticipates,
plans, expects, intends and
similar expressions are intended to identify forward-looking
statements. Our actual results and the timing of certain events
may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a
discrepancy include, but are not limited to, those discussed in
Liquidity and Capital Resources and Risk
Factors below. All forward-looking statements in this
document are based on information available to us as of the date
hereof and we assume no obligation to update any such
forward-looking statements.


Recent Events

On June 14, 2004, Terremark privately placed
$75 million in aggregate principal amount of 9% Senior
Convertible Notes due June 15, 2009. We plan to utilize the
net proceeds from this offering to pay all of our outstanding
debt, for possible acquisitions and for general corporate
purposes, including working capital and capital expenditures.
The notes are convertible at the option of the holders into our
common stock at $1.25 per share. See Liquidity and Capital
Resources in this section for the impact of this
transaction on our financial condition.

Critical Accounting Policies and
Estimates

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



| |   |                                                 
| | - | ------------------------------------------------
| |  | revenue recognition and allowance for bad debts;
|
| |  | accounting for income taxes;                    
|
| |  | impairment of long-lived assets; and            
|
| |  | goodwill                                        



| |                                                    
| | ---------------------------------------------------
| | Revenue recognition and allowance for bad
    debts

Currently, we derive our revenues from monthly
recurring fees for colocation and exchange point services and
managed services. We also receive non-recurring installation fee
for colocation and exchange point services and for construction
activities. Revenues from colocation, exchange point services
and managed services are billed monthly and recognized ratably
over the term of the contract. Installation fees are generally
billed in the period in which the installation is performed but
deferred and recognized ratably over the term of the related
contract. Managed services fees are billed and recognized in the
period in which the services are provided. Construction
activities are billed in accordance with contract terms, but
revenues are recognized on the percentage-of-completion method.

Revenue is recognized as service is provided when
there is persuasive evidence of an arrangement, the fee is fixed
or determinable and collection of the receivable is reasonably
assured. We assess collection based on a number of factors,
including transaction history with the customer and the
credit-worthiness of the customer. We do not request collateral
from customers. If we determine that collection is not
reasonably assured, we defer the fee and recognize revenue at
the time collection becomes reasonably assured, which is
generally upon receipt of cash. As of March 31, 2004 and
2003, our accounts receivable amounted to $3,214,101 and

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$494,736, respectively, and were net of allowance
for doubtful accounts of approximately $200,000 and $120,340,
respectively.


Revenues from construction contracts are
recognized on the percentage-of-completion method, measured by
the percentage of costs incurred to date to total estimated
costs for each contract. This method is used because management
considers cost incurred to be the best measure of progress on
these contracts. The duration of a construction contract
generally exceeds one year. Billings in excess of costs and
estimated earnings on uncompleted contracts are classified as
other liabilities and represent billings in excess of revenues
recognized. Construction contract expense costs include all
direct material and labor costs and indirect costs related to
contract performance such as indirect labor, supplies, tools,
repairs, bad debt and depreciation. Provisions for estimated
losses on uncompleted contracts are made in the period in which
losses are determined. Changes in job performance, job
conditions and estimated profitability, including those arising
from contract penalty provisions and final contract settlements
may result in revisions to costs and income and are recognized
in the period in which the revisions can be reasonably
estimated. Accordingly, it is possible that our current
estimates relating to completion cost and profitability of our
uncompleted contracts will vary from actual results. Excluding
depreciation, profit margins (construction contract revenue less
construction contract expenses) on construction contracts for
the years ended March 31, 2004, 2003 and 2002 were $22,432,
$315,658 and $857,163, respectively.

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



| |                            
| | ---------------------------
| | 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.

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

Our federal and state net operating loss
carryforwards, amounting to approximately $137 million,
begin to expire in 2011. Utilization of the net operating losses
generated prior to the AmTec merger may be limited by the
Internal Revenue Code. Should we determine that we would be able
to realize our deferred tax assets in the foreseeable future, an
adjustment to the deferred tax assets would increase income in
the period such determination is made.



| |                                
| | -------------------------------
| | Impairment of Long-Lived Assets

We account for impairment of long-lived assets in
accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which we
adopted in fiscal 2003. This standard requires that long-lived
assets be 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

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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. Prior to adoption of SFAS No. 144, we accounted for
long-lived assets in accordance with SFAS No. 121,
Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of.


As of March 31, 2004 and 2003, our
long-lived assets, including property and equipment, net and
identifiable intangible assets and goodwill, totaled $63,897,586
and $64,482,834, respectively. For the years ended
March 31, 2004, 2003 and 2002, we recognized impairment
charges amounting to $0, $4,020,300, and $18,973,670,
respectively.

Goodwill

We account for goodwill in accordance with
Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets
(SFAS 142). SFAS 142 addresses financial
accounting and reporting for acquired goodwill and other
intangible assets. Under SFAS 142, goodwill and intangible
assets that have indefinite lives are not amortized but rather
are tested at least annually for impairment or whenever events
or changes in circumstances indicate that the carrying amount of
these assets may not be fully recoverable. The goodwill
impairment test involves a two-step approach. Initially the fair
value of the reporting units are compared with their carrying
amount, including goodwill, to identify potential impairment. If
the carrying amount of a reporting unit exceeds its fair value,
an impairment loss is recognized for the excess, if any, of the
carrying value of goodwill over the implied fair value of
goodwill. Intangible assets that have finite useful lives
continue to be amortized over their useful lives.

Prior to the adoption of SFAS 142,
intangible assets were generally amortized on the straight-line
method over five years. In accordance with SFAS 142, we
ceased amortization of our intangible assets with indefinite
lives and completed an initial impairment test of intangible
assets as of April 1, 2002. Management determined in the
initial impairment test that these assets were not impaired
based on their fair values. Fair value was estimated using the
expected present value of future cash flows and the assumed
market capitalization at the reporting unit level.

Results of Operations



| |         
| | --------
| | Overview

For the year ended March 31, 2004,
approximately 94% of our total revenues were generated from data
center operations. The remainder was substantially related to
construction work. For the year ended March 31, 2003,
approximately 75% of our total revenues were generated from data
center operations. The remainder was substantially related to
construction work. For the year ended March 31, 2002,
approximately 20% of our total revenues were generated from data
center operations, approximately 52% was from real estate
projects and construction work, and approximately 28% was from
property and construction management. During the past three
years, our results of operations have been significantly
impacted by:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our shift in focus to the housing and management
    of Internet infrastructure after the NAP of the Americas became
    operational in July 2001;                                                                                                                                                                                                                                                                                      
|
| |  | the sale of our telecom facilities management
    operations in February 2001; and                                                                                                                                                                                                                                                                                                                                                      
|
| |  | our exit from non-core real estate activities by
    March 31, 2002. Non-core real estate activities included
    real estate development, property management, financing and
    other ancillary businesses that complemented the development
    operations. Our real estate activities currently include
    technology infrastructure construction work and management of
    the property where the NAP of the Americas is located.

17



---



##### Table of Contents





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

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

|        |                                      |                |     |      |   |  |     |    |  
|------- | ------------------------------------ | -------------- | --- | ---- | - |  | --- | -- | -
|        |                                      |               
|        |                                      | For the Twelve
|        |                                      | Months Ended  
|        |                                      | March 31,     
|        |                                      |               
|        |                                      | 2004           |     | 2003
|        |                                      |                |     |     
|Revenue |                                      |                |     |      |   |  |     |   
|        | U.S                                  |                |     | 99   | % |  |     | 98 | %
|        | Outside U.S                          |                |     | 1    | % |  |     | 2  | %
|        |                                      |                |     |      |   |  |     |   
|        |                                      |                | 100 | %    |   |  | 100 | % 
|        |                                      |                |     |      |   |  |     |   
|        | Data Center                          |                |     | 94   | % |  |     | 75 | %
|        | Construction Work                    |                |     | 5    | % |  |     | 22 | %
|        | Property and Construction Management |                |     | 1    | % |  |     | 3  | %
|        |                                      |                |     |      |   |  |     |   
|        |                                      |                | 100 | %    |   |  | 100 | % 
|        |                                      |                |     |      |   |  |     |   

Data center revenues consist of:

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

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



| |   |                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | colocation services, such as leasing of space and
    provisioning of power;                                                                                                                                                        
|
| |  | exchange point services, such as peering and
    cross connects; and                                                                                                                                                                
|
| |  | managed and professional services, such as
    network management, network monitoring, procurement and
    installation of equipment and procurement of connectivity,
    managed router services, technical support and consulting.

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

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

18



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##### Table of Contents



Development, commission and construction fees
decreased $156,000 to $41,000 for the twelve months ended
March 31, 2004 from $197,000 for the twelve months ended
March 31, 2003. We do not expect any revenues from
development, commission and construction fees in the foreseeable
future.

Management fees increased $18,000 to $198,000 for
the twelve months ended March 31, 2004 from $180,000 for
the twelve months ended March 31, 2003. The only facility
we currently manage is TECOTA, the property in which the NAP of
the Americas is located. We collect a monthly management fee
from TECOTA equal to the greater of approximately $8,000 or 3%
of cash collected by TECOTA. Although in the future, we may
manage properties where our centers are including TECOTA, we
anticipate that management fees will not be a significant source
of revenue in the foreseeable future.

Construction contract revenue decreased
$2.4 million to $940,000 for the twelve months ended
March 31, 2004 from $3.3 million for the twelve months
ended March 31, 2003. During the twelve months ended
March 31, 2004 and 2003, we completed three and eleven
construction contracts, respectively. As of March 31, 2004,
we have one construction contract in process. Due to our
approach to our construction business, we expect revenues from
construction contracts to significantly fluctuate from quarter
to quarter. We anticipate focusing our efforts on obtaining
construction contracts for projects related to technology
infrastructure.

Data Center Operations Expenses.Data center operations expenses
increased $5.2 million, or 46.4%, to $16.4 million for
the twelve months ended March 31, 2004 from
$11.2 million for the twelve months ended March 31,
2003. Data center operations expenses consist mainly of rent,
operations personnel, property taxes, electricity, chilled
water, procurement of equipment and connectivity and security
services. The increase in total data center operations expenses
is due to an increase of $3.1 million in rent, an increase
of $376,000 in electricity and chilled water, an increase of
$526,000 in personnel costs and an increase of $717,000 in costs
related to the procurement of equipment and connectivity under a
U.S. Federal government contract. The increase in rent
expense is due to the July 2003 opening of our NAP-West
facilities in Santa Clara, California and the leasing of an
additional 120,000 square feet of space in the third floor of
TECOTA, which commenced in November 2003. We have been paying
rent for our NAP-West facilities since January 2001 but before
we opened these facilities in July 2003, related expenses were
recorded as impairment charges. Rent expense is being recorded
on the straight-line method based on contractual amounts even
though actual payments for the third floor of TECOTA will not
commence until April 2005. The increase in personnel costs is
mainly attributable to staff increase from 60 operations
employees in fiscal year 2003 to 75 for fiscal year 2004. We
anticipate that some data center expenses, principally
electricity, chilled water, payroll and costs related to managed
services, will increase as we provide additional services to
existing customers and introduce new products and services.

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

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

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

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

Impairment of
Long-Lived Assets and Goodwill.During
the three months ended March 31, 2004, we performed our
annual test for impairment and concluded that these assets were
not impaired.

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

Interest Expense.Excluding non-cash charges, interest
expense decreased to $7.1 million from $11.0 million
for the years ended March 31, 2004 and 2003, respectively.
We reduced the interest expense as a result of a reduction in
the principal balance outstanding and a reduction in the
interest rates. Due to the conversion of some of our debt and
construction payables to equity which was partially offset by
the issuance of new debt, our principal balance outstanding
decreased to $77.7 million from $101.7 million as of
March 31, 2004 and 2003, respectively. In addition our
average interest rate on our debt decreased to 8.1% from 9.8%
for the years ended March 31, 2004 and 2003, respectively.
Net non-cash charges of approximately $7.5 million
represent the amortization of a beneficial conversion feature as
additional interest expense partially offset by the amortization
of a debt restructuring gain as reductions to interest expense.

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

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

|                       |  |                       |             |      |  |   |             |  
|---------------------- |  | --------------------- | ----------- | ---- |  | - | ----------- | -
|                       |  |                      
|                       |  | For the Twelve Months
|                       |  | Ended March 31,      
|                       |  |                      
|                       |  | 2004                  |             | 2003
|                       |  |                       |             |     
|Data center operations |  | $                     | (22,152,261 | )    |  | $ | (37,565,136 | )
|Real estate services   |  |                       | (338,316    | )    |  |   | (3,662,169  | )
|                       |  |                       |             |      |  |   |             |  
|                       |  | $                     | (22,490,577 | )    |  | $ | (41,227,305 | )
|                       |  |                       |             |      |  |   |             |  

The net loss from data center operations 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

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revenues. Although we had a net operating loss
for the current period, we anticipate that our real estate
activities will generate sufficient revenues to cover their
operating expenses and we do not expect to fund more than
$200,000 per year of operating losses from our real estate
activities in the foreseeable future.




| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | Results of Operations for the Year Ended
    March 31, 2003 as Compared to the Year Ended March 31,
    2002

Revenue.Total
revenue decreased $1.2 million, or 7.5%, to
$14.7 million for the year ended March 31, 2003 from
$15.9 million for the year ended March 31, 2002. The
decrease is due to a reduction in our development, management
and construction contracts revenue of approximately
$9.0 million partially offset by an increase in data center
revenue, including contract termination fee, of approximately
$7.8 million.

Data center revenue increased $6.7 million
to $9.9 million for the year ended March 31, 2003 from
$3.2 million for the year ended March 31, 2002.
Revenues consisted of recurring revenues of $8.4 million
and $2.9 million respectively, for the years ended
March 31, 2003 and 2002, primarily from charges for
colocation, power, peering and some managed services.
Non-recurring revenues were $1.5 million and $355,000,
respectively, for the years ended March 31, 2003 and 2002,
primarily related to managed services and the recognized portion
of deferred installation revenue. Installation fees are
recognized ratably over the term of the contract. The increase
in revenues was primarily the result of an increase in orders
from existing customers and growth in our deployed customer base
from 40 customers as of March 31, 2002 to 86 customers
as of March 31, 2003. We anticipate an increase in revenues
from colocation, power and peering and revenues from managed
services as we add more customers to the NAP of the Americas,
sell additional services to existing customers and introduce new
products and services.

Data center services revenues consist of
colocation services, such as leasing of space and provisioning
of power; exchange point services, such as peering and
interconnection; and managed and professional services, such as
network management, procurement and installation of equipment
and procurement of connectivity, managed router services,
technical support and consulting. We anticipate an increase in
revenue from colocation and exchange point services as we add
more customers to our network of NAPs, sell additional services
to existing customers and introduce new products and services.
We also expect managed and professional services to become an
important source of revenue and increase as a percentage of data
center- services. For the years ended March 31, 2003 and
2002, data center services revenues consisted of the following:

|                                     |  |      |           |      |  |  |     |   |  |   |           |  |  |  |     |  
|------------------------------------ |  | ---- | --------- | ---- |  |  | --- | - |  | - | --------- |  |  |  | --- | -
|                                     |  |      |           |      |  |  |     |  
|                                     |  |      |           |     
|                                     |  | 2003 |           | 2002
|                                     |  |      |           |     
|Colocation & exchange point services |  | $    | 8,146,149 |      |  |  | 82  | % |  | $ | 2,967,207 |  |  |  | 92  | %
|Managed & professional services      |  |      | 1,791,750 |      |  |  | 18  | % |  |   | 248,690   |  |  |  | 8   | %
|                                     |  |      |           |      |  |  |     |   |  |   |           |  |  |  |     |  
|                                     |  | $    | 9,937,899 |      |  |  | 100 | % |  | $ | 3,215,897 |  |  |  | 100 | %
|                                     |  |      |           |      |  |  |     |   |  |   |           |  |  |  |     |  

Data center  contract termination fee
was $1.1 million for the year ended March 31, 2003 and
represents amounts received from two customers for the
termination of their contracted services with the NAP of the
Americas. No fees were received during the year ended
March 31, 2002. Contract termination fees are recognized
upon contract termination when there are no remaining
contingencies or obligations on our part.

Development, commission and construction fees
decreased $3.0 million, or 93.8%, to $197,000 for the year
ended March 31, 2003 from $3.2 million for the year
ended March 31, 2002. The decrease in development,
commission and construction fees is primarily the result of our
exiting of the underlying non-core real estate activities. We do
not expect any significant amount of revenues from development,
commission and construction fees.

Management fees decreased $1.0 million, or
83.3%, to $200,000 for the year ended March 31, 2003 from
$1.2 million for the year ended March 31, 2002. The
decrease is a result of our exiting the management of commercial
and residential properties. The only facility we currently
manage is TECOTA, the property in which the NAP of the Americas
is located. We collect from TECOTA a monthly management fee of
approximately $8,000 or 3% of cash collected by TECOTA,
whichever is greater. During the fiscal year ended

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March 31, 2002, we managed approximately 10
properties. Because we do not plan to manage properties other
than TECOTA, we anticipate that management fees will not be a
significant source of revenues in the future.


Construction contract revenue decreased
$5.0 million, or 60.2%, to $3.3 million for the year
ended March 31, 2003 from $8.3 million for the year
ended March 31, 2002. During the year ended March 31,
2003 we completed eleven contracts and, as of March 31,
2003, had two construction contracts in process. During the year
ended March 31, 2002, we completed two contracts and, as of
March 31, 2002, we had five construction contracts in
process. The decrease in revenues from construction contracts is
due to a decrease in the average revenue per contract, which
went from average revenue per contract of $3.6 million in
fiscal year 2002 to average revenue per contract of $500,000 in
fiscal year 2003. Due to our opportunistic approach to our
construction business, we expect revenues from construction
contracts to significantly fluctuate from quarter to quarter. We
anticipate focusing our efforts on obtaining construction
contracts for projects related to technology infrastructure.

Data Center Operations
Expenses.Excluding depreciation, data
center operations expenses remained constant at
$11.2 million for the years ended March 31, 2003 and
2002. Data center operations consist mainly of rent, operations
personnel, electricity, chilled water and security services.
With the exception of electricity and chilled water, the
majority of these expenses are fixed in nature. However,
commencing in fiscal year 2004, we anticipate that certain data
center expenses, principally costs related to managed services,
will increase as we provide additional services to existing
customers and introduce into the market new products and
services. We also expect that our costs of electricity and
chilled water costs will increase in the future as we add more
customers to the NAP of the Americas. The number of employees
whose salaries are included in data center operations remained
constant at 60 during the years ended March 31, 2003 and
2002.

Contract Construction Expenses.Contract construction expenses
decreased $4.4 million, or 59.5%, to $3.0 million for
the year ended March 31, 2003 from $7.4 million for
the year ended March 31, 2002. This decrease is a result of
the decrease in number of contracts and dollar amount of those
projects as discussed above in revenues from construction
contracts. We do not currently anticipate losses on any of
the individual contracts.

Start-up Costs  Data Centers.There were no start-up costs for the
year ended March 31, 2003. Start-up costs for the year
ended March 31, 2002 primarily relate to the NAP of the
Americas in Miami, Florida, and were approximately
$3.4 million.

General and Administrative Expenses.General and administrative expenses
decreased $3.1 million, or 19.9%, to $12.5 million for
the year ended March 31, 2003 from $15.6 million for
the year ended March 31, 2002. General and administrative
expenses consist primarily of salaries and related expenses,
professional service fees, rent and other general corporate
expenses. The decrease in general and administrative expenses is
mainly due to decreases in rent of $1.9 million and payroll
of $1.0 million.

Carrying costs, including rent, for our Corvin
facility in Santa Clara, California for the year ended
March 31, 2003 were reflected in the facilitys
impairment charge in the previous year. In accordance with SFAS
No. 121, we recognized as of March 31, 2002 an
impairment charge of $5.5 million, including
$1.5 million in expected lease carrying costs for the
period of time until the facility could be sublet. During the
second quarter ended September 30, 2002, an additional
$350,000 in expected lease carrying costs were recognized and
included as part of impairment of long-lived assets. During the
year ended March 31, 2002, the rent for the Corvin facility
for that year was included in general and administrative
expenses.

The decrease in payroll is mainly attributable to
staff reductions. The number of employees whose salaries are
included in general and administrative expenses decreased from
63 for the year ended March 31, 2002 to 50 for the year
ended March 31, 2003.

The remaining period over period decrease in
general and administrative expenses is mainly attributable to a
decrease in general corporate overhead resulting from our exit
of non-core real estate activities in the year ended
March 31, 2002.

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Sales and Marketing Expenses.Sales and marketing expenses increased
$600,000, or 16.7%, to $4.2 million for the year ended
March 31, 2003 from $3.6 million for the year ended
March 31, 2002. The significant components of sales and
marketing expenses are salaries, commissions, provision for bad
debt expenses and marketing. The increase in sales and marketing
expenses was mainly attributable to an increase in investor
relations expense of $442,000 and an increase in provision for
bad debt expenses of approximately $265,000. We issued warrants
valued at approximately $442,000 to a third party for investor
relations services. Provision for bad debt expense consists of
full provisions related to eight customers. We have commenced
legal action against many of these customers. The number of
employees whose salaries are included in sales and marketing
expenses increased slightly from 21 as of March 31, 2002 to
22 as of March 31, 2003.

Depreciation and Amortization Expense.Depreciation and amortization expense
decreased $2.2 million, or 30.1%, to $5.1 million for
the year ended March 31, 2003 from $7.3 million for
the year ended March 31, 2002. This decrease in
depreciation and amortization expense was mainly due to the
cessation of $3.5 million in amortization of goodwill and
intangible assets in accordance with current accounting
standards and a decrease in depreciation of approximately
$0.4 million related to our colocation facility in Santa
Clara, California and non core assets. The decrease was
partially offset by an increase in depreciation of approximately
$1.7 million primarily from assets of the NAP of the
Americas that were put in service during fiscal year 2002 and
had a full year of depreciation in fiscal year 2003.

Impairment of Long-Lived Assets.Due principally to the decline and
uncertainty of the telecommunications and Internet
infrastructure markets, we recognized the following impairment
charges:

|                                    |  |                      |           |      |  |   |            | 
|----------------------------------- |  | -------------------- | --------- | ---- |  | - | ---------- | 
|                                    |  |                     
|                                    |  | Year Ended March 31,
|                                    |  |                     
|Asset                               |  | 2003                 |           | 2002
|                                    |  |                      |           |     
|Facility in Santa Clara, California |  | $                    | 350,000   |      |  | $ | 11,983,670 | 
|Post Shell goodwill                 |  |                      | 2,315,336 |      |  |   | 3,190,000  | 
|TECOTA promote interest             |  |                      | 904,964   |      |  |   | 3,800,000  | 
|Equipment                           |  |                      | 450,000   |      |  |   |           | 
|                                    |  |                      |           |      |  |   |            | 
|                                    |  | $                    | 4,020,300 |      |  | $ | 18,973,670 | 
|                                    |  |                      |           |      |  |   |            | 

As a result of impairment charges in the years
ended March 31, 2003 and 2002, the long-lived assets
described in the table above became fully impaired.

Due to our unsuccessful efforts to lease space at
our colocation facility in Santa Clara, California, during the
quarter ended September 30, 2001, we granted an option to
one of our vendors (a contractor involved with the
facilitys build-out) to purchase the leasehold
improvements and assume the existing lease for approximately
$4.0 million. Based on this option, we recorded a
$6.6 million impairment charge in the quarter ended
September 30, 2001 to write the improvements down to the
option amount. Subsequently, we continued to search for
alternatives, which included subleasing or selling our leasehold
improvements. In the quarter ended March 31, 2002, upon
expiration of the option, we listed our leasehold improvements
for sale, indicating a definite change in the strategy. We are
now actively looking for a buyer to assume the existing lease or
sublease all or a substantial portion of the space. The existing
lease is $118,000 per month, with scheduled annual increases,
for a twenty-year term ending in 2020. We believe that the most
likely outcome is that the property will be subleased or leased
from the landlord to a third party and that we will receive no
consideration for the leasehold improvements. Based on this most
likely scenario, in the quarter ended March 31, 2002, we
recorded an additional $5.5 million impairment, resulting
in the asset being fully reserved. We also established as of
March 31, 2002 reserves for leasehold carrying costs,
consisting primarily of monthly rent. As of March 31, 2003,
we had approximately $1.4 million in related reserves which
we anticipate will carry the facility through March 2004.

The decline in the telecommunications industry
and resulting decline in related real estate construction and
leasing activities caused us to perform, during the years ended
March 31, 2003 and 2002, impairment analyses of our promote
interests in TECOTA acquired in the telecom facilities
management operations and the goodwill related to the Post Shell
acquisition. Our analyses were based on estimated fair value
determined by the discounted future expected cash flows method.
The analyses anticipated obtaining additional

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construction contracts for Post Shell and
additional tenants for TECOTA. We determined that the assets,
which are included in our telecom facilities management and real
estate services segments, were impaired as of March 31,
2002 by approximately $3.8 million and $3.2 million,
respectively. During the year ended March 31, 2003, no
significant contracts were awarded to Post Shell and no tenants
were added to TECOTA. As a result, we impaired the remaining
$905,000 in TECOTA promote interests and $2.3 million in
Post Shell goodwill.


During the year ended March 31, 2003, we
wrote off $450,000 related to equipment that has been held for
installation for more than one year and is considered obsolete.

On October 15, 2002, we entered into a joint
venture agreement to develop and operate a HIPPA compliant
network access point at the NAP of the Americas in Miami,
Florida. We acquired a 10% interest in the joint venture company
by issuing a $1.0 million promissory note. As the joint
venture was not fully funded by December 31, 2002, we
determined that our joint venture interest was impaired.
Therefore, we recognized a $1.0 million impairment as of
December 31, 2002. Effective March 31, 2003, we and
the other joint venture partner entered into an agreement to
declare void all the then current agreements and contracts,
including the joint venture agreement. As a result, we were no
longer obligated under the promissory note. The results of
operations present, on a net basis, the effects of the formation
and the dissolution of the joint venture and accordingly no gain
or loss was recognized as a result of these transactions.

Interest Income.Interest income increased $39,000, or 40.2%, to $136,000 for the
year ended March 31, 2003 from $97,000 for the year ended
March 31, 2002. The increase was due to the recording of
interest income on a $5.0 million note receivable from our
Chief Executive Officer which began accruing interest in
September 2002.

Inducement on Debt
Conversion.During the year ended
March 31, 2003, we incurred a non-cash expense of
$5.0 million related to the $15.8 million of our
convertible debt that was converted into 22.0 million
shares of our common stock. The debt was converted at
$0.75 per share, which was approximately 50% below the
stated conversion price. This expense represents the fair value
of the additional common shares issued by us as a result of the
lower conversion price.

Interest Expense.Interest expense increased $1.2 million, or 12.2%, to
$11.0 million for the year ended March 31, 2003 from
$9.8 million for year ended March 31, 2002. The
increase was due to an increase of $33.0 million in the
average debt balance outstanding. The increase was offset by the
conversion of $15.8 million in convertible debt during the
quarter ended December 31, 2002 and reduction in the
interest rate of the Ocean Bank loan from 9.25% to 7.50%. Based
on the April 30, 2003 transactions, we expect cash interest
payments to be reduced by approximately $900,000 for the year
ended March 31, 2004.

Gain On the Sale of Real Estate Held for
Sale.In July 2001, we sold Fortune
House II for $17.2 million and recorded a gain of
approximately $3.9 million. During the year ended
March 31, 2002, we also sold six condominium units and
recorded a net gain of $0.3 million. The last condominium
unit was sold in the quarter ended March 31, 2002.

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

|                              |  |                              |            |      |  |   |            | 
|----------------------------- |  | ---------------------------- | ---------- | ---- |  | - | ---------- | 
|                              |  |                             
|                              |  | For the Year Ended March 31,
|                              |  |                             
|                              |  | 2003                         |            | 2002
|                              |  |                              |            |     
|Data center operations        |  | $                            | 37,565,136 |      |  | $ | 34,971,359 | 
|Telecom facilities management |  |                              |           |      |  |   | 16,682,059 | 
|Real estate services          |  |                              | 3,662,169  |      |  |   | 5,718,797  | 
|                              |  |                              |            |      |  |   |            | 
|                              |  | $                            | 41,227,305 |      |  | $ | 57,372,215 | 
|                              |  |                              |            |      |  |   |            | 

The net loss for the year ended March 31,
2003 is mainly due to non-cash items, including impairment
charges of long-lived assets of approximately $4.0 million
and depreciation and amortization expense of approximately
$5.1 million, interest expense of approximately
$11.0 million, and approximately $11.2 million of
expenses generated from the operations of the NAP of the
Americas. The net loss for our data center operations segment is
primarily the result of insufficient revenues at the NAP of the
Americas to cover our

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operating and interest expenses. We expect to
continue generating net losses from the data center operations
segment until we reach required levels of monthly revenues. The
net loss from our telecom facilities management segment for the
year ended March 31, 2002 resulted primarily from
impairment, interest and general expenses from our collocation
facility in Santa Clara, California. There were no revenues
generated from the facility during the period. For the year
ended March 31, 2003, the losses related to the facility
were insignificant and included in data center operations. The
net loss from real estate activities for the years ended
March 31, 2003 and 2002 resulted from insufficient revenues
to support general and interest costs and impairments. Due to
our exit of real estate activities not related to our strategy,
we anticipate that the significance of the real estate
activities to our overall operations will decrease.


Liquidity and Capital Resources

Liquidity and
Recent Developments

We privately placed $75 million in aggregate
principal amount of 9% Senior Convertible Notes due
June 15, 2009 to qualified institutional buyers on
June 14, 2004. We also granted the initial purchasers of
the notes a 30-day option to purchase up to an additional
$11.25 million aggregate principal amount of the notes. The
notes bear interest at a rate of 9% per annum, payable
semi-annually, beginning December 15, 2004 and are
convertible at the option of the holders at $1.25 per share. We
plan to utilize the net proceeds from this offering to pay all
of our outstanding debt, for possible acquisitions and for
general corporate purposes, including working capital and
capital expenditures.

The Senior Notes will rank senior in priority
with all existing and future unsecured and unsubordinated
indebtedness and senior in right of payment to all of existing
and future subordinated indebtedness, and rank junior to any
future secured indebtedness.

If there is a change in control, the holders 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 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 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 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.

On May 17, 2004, we provided certain
debenture holders with notice of our intent to redeem
$25.0 million of our 10% convertible debentures and
$2.8 million of our 13.125% convertible debentures,
effective May 31, 2004. As of May 31, 2004, all of the
holders of our 10% convertible debentures and $2.5 million
in principal of our 13.125% convertible debentures opted to
convert their debentures into an aggregate of 54,726,427 shares
of our common stock.

In May 2004, we issued three senior secured
promissory notes in favor of Veritas High Yield Arbitrage I
Fund, LLC, Veritas High Yield Arbitrage II
Fund, LLC, and Veritas High Yield Arbitrage Fund,
(Bermuda) Ltd. (collectively the Lenders) for
the aggregate amount of $5.2 million. The notes accrue
interest at 12% per annum, are paid monthly based on
original face amount, and mature on October 29, 2004, with
prepayment permitted without penalty after the first month.

Historically, we have financed our operations and
capital requirements primarily through our credit facility with
Ocean Bank, issuance of unsecured notes, issuance of convertible
debentures, private sale of common and preferred stock and
vendor financing, including construction payables and capital
lease obligations. As of March 31, 2003, our total
indebtedness was approximately $116.1 million. As of
March 31, 2004, this amount was reduced to $82.1, including
the conversion to equity of $15.0 million of the Ocean Bank
debt and $22.6 million of certain construction payables,
including accrued interest.

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From the time of the merger through
March 31, 2004, we incurred net operating losses of
approximately $222.5 million. Our cash flows from
operations for the years ended March 31, 2004 and 2003 were
negative and the working capital deficit was approximately
$10.2 million and $38.3 million as of March 31,
2004 and 2003, respectively.

Based on customer contracts signed as of
June 14, 2004, expected expansions of customers under
contract and anticipated future contracts from potential
customers in the sales pipeline, we project that our cash flow
from operations will be positive by the end of the fiscal year
ending March 31, 2005. Our projected revenues and cash
flows, depend on several factors, some of which are beyond our
control, including the rate at which we provides services and
these services are accepted 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 the our ability to market
our services. Although the real estate activities had a net
operating loss of approximately $338,000 for the year ended
March 31, 2004, we anticipate that these activities will
generate enough revenues to cover operating expenses. If
revenues for real estate activities are below amounts
anticipated, cash needs are not expected to exceed $200,000 for
the next twelve months. Accordingly, we have the cash resources
sufficient to meet our working capital, debt service and
corporate overhead requirements associated with our operations
for at least the next 18 months.

Sources
and Uses of Cash

Cash used in operations for the year ended
March 31, 2004 was approximately $15.9 million
compared to cash used in operations of $18.3 million for
the year ended March 31, 2003, a decrease of
$2.4 million. This decrease was primarily due to the
collection of $3.8 million fee for the grant of an
exclusive right to develop a facility in Australia. Our net loss
included the following non-cash items:

|                               |  |                 |            |      |  |   |            | 
|------------------------------ |  | --------------- | ---------- | ---- |  | - | ---------- | 
|                               |  |                
|                               |  | For the year   
|                               |  | ended March 31,
|                               |  |                
|                               |  | 2004            |            | 2003
|                               |  |                 |            |     
|Stock-based compensation       |  | $               | 2,185,463  |      |  | $ |           | 
|Depreciation and amortization  |  |                 | 4,698,292  |      |  |   | 5,092,749  | 
|Asset impairments              |  |                 |           |      |  |   | 4,020,300  | 
|Inducement on debt conversion  |  |                 |           |      |  |   | 4,871,245  | 
|Gain on debt restructuring     |  |                 | (8,475,000 | )    |  |   |           | 
|Deferred rent                  |  |                 | 4,327,831  |      |  |   | 1,135,448  | 
|Beneficial conversion features |  |                 | 8,595,239  |      |  |   |           | 
|                               |  |                 |            |      |  |   |            | 
|                               |  | $               | 11,331,825 |      |  | $ | 15,119,742 | 
|                               |  |                 |            |      |  |   |            | 

Cash used in investing activities for the year
ended March 31, 2004 was $4.1 compared to cash used in
investing activities of $1.3 million for the year ended
March 31, 2003, an increase of $2.8 million. This is
due to the increase of approximately $3.1 million in
leasehold improvements and equipment for the third floor of
TECOTA.

Cash provided by financing activities for the
year ended March 31, 2004 was $22.9 million compared
to cash provided by financing activities of $20.8 million
for the year ended March 31, 2003, an increase of
$2.1 million. For the year ended March 31, 2004, cash
provided by financing activities included $27.6 million of
debt and equity financing partially offset by $4.6 million
in debt repayments. For the year ended March 31, 2003, cash
provided by financing activities included $27.0 million of
equity and debt financing, partially offset by $5.2 million
in payments of debt and construction payables.

Debt and equity
activity

On March 31, 2004, we issued 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 our common stock and which are exercisable for five
years at $0.90 per share. We have collected all amounts due

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under the promissory notes. The Series I
Preferred Stock is convertible into shares of our 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 quarterly,
at our discretion, in shares of our common stock or cash. We
have the right to redeem the Series I Preferred Stock at
$25,000 per share plus accrued dividends at any time after
December 31, 2004.


As of March 31, 2004, our total
indebtedness, including interest, from notes payable, capital
lease obligations, convertible debt and Series H preferred
stock was approximately $82.1 million. See Liquidity
and Recent Developments in this section for certain
subsequent events.

Our notes payable consist of:

|                                                                                                                                                                                                                                                                                                                                                                                                 |                                          |                |            |            | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------- | -------------- | ---------- | ---------- | 
|                                                                                                                                                                                                                                                                                                                                                                                                 |                                          | March 31, 2004
|                                                                                                                                                                                                                                                                                                                                                                                                 |                                          |               
|Notes payable to unrelated parties:                                                                                                                                                                                                                                                                                                                                                              |                                          |                |            |           
|Unsecured notes payable to
    SBP Investments, Inc. and Caerulea, Ltd., Principal
    and interest accruing at 10% due in April 2004(2).                                                                                                                                                                                                                                                        |                                          | $              | 2,800,000  |           
|Unsecured note payable to Slivovitz Design
    Limited, Inc., interest accrues at 15%. Principal and
    interest due in April 2004.(2)                                                                                                                                                                                                                                                          |                                          |                | 1,000,000  |           
|Unsecured notes payable to various individuals,
    interest ranges from 10% to 15%. Principal and interest due
    between April 2004 and March 2005.(1)                                                                                                                                                                                                                                        |                                          |                | 821,884    |           
|Note payable to JCH Aston
    Partners, LLC, collateralized by certain assets of a
    director and certain of our shareholders. Interest accrues at 1%
    over prime, principal and interest due in July
    2004.(1)                                                                                                                                                                          |                                          |                | 367,178    |           
|                                                                                                                                                                                                                                                                                                                                                                                                 |                                          |                |            |           
|                                                                                                                                                                                                                                                                                                                                                                                                 | Total notes payable to unrelated parties |                | $          | 4,989,062  | 
|                                                                                                                                                                                                                                                                                                                                                                                                 |                                          |                |            |           
|Notes payable to related parties:                                                                                                                                                                                                                                                                                                                                                                |                                          |                |            |           
|Note payable to Ocean Bank, collateralized by
    substantially all assets of the NAP of the Americas and a
    personal guaranty of the Chief Executive Officer. Carrying
    amount includes an unamortized balance of a debt restructuring
    gain of $4,309,764. Interest is payable quarterly at an annual
    rate of 5.25%. Effective May 2004 annual interest increases to
    7.5%.(3) |                                          | $              | 33,284,317 |           
|Unsecured note payable to Centre Credit
    Corporation, a corporation controlled by a shareholder, interest
    accrues at 15%. Principal and interest due in April
    2004.(2)                                                                                                                                                                                                                |                                          |                | 1,600,000  |           
|Unsecured notes payable to certain of our
    executives and directors and corporations in which related
    parties have an interest, interest accrues at 13%. Principal and
    interest due in April 2004.(2)                                                                                                                                                                                 |                                          |                | 632,660    |           
|                                                                                                                                                                                                                                                                                                                                                                                                 |                                          |                |            |           
|                                                                                                                                                                                                                                                                                                                                                                                                 | Total notes payable to related parties   |                | $          | 35,516,977 | 
|                                                                                                                                                                                                                                                                                                                                                                                                 |                                          |                |            |           
|                                                                                                                                                                                                                                                                                                                                                                                                 |                                          |                | 40,506,039 |           
|Less: current portion of notes payable                                                                                                                                                                                                                                                                                                                                                           |                                          |                | 9,194,145  |           
|                                                                                                                                                                                                                                                                                                                                                                                                 |                                          |                |            |           
|Notes payable, less current portion                                                                                                                                                                                                                                                                                                                                                              |                                          | $              | 31,311,894 |           
|                                                                                                                                                                                                                                                                                                                                                                                                 |                                          |                |            |           






|    |                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Expected to be paid in full, in June 2004, with
    proceeds of our $75.0 million senior convertible notes.                                                    
|(2) | We did not pay approximately $7.6 million in
    principal and interest which were due April 1, 2004. We
    paid in full the notes on or before June 14, 2004.
|   
|(3) | Paid in full in June 14, 2004.                                                                                                                                 

Ocean Bank Credit Facility:On September 5, 2001, we
borrowed $48.0 million from Ocean Bank. The Ocean Bank
credit facility is secured by all of our assets and allows for
up to a $25.0 million junior lien

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position on the assets of our NAP of the
Americas, Inc. subsidiary. To obtain the original loan, we paid
a $720,000 commitment fee to Ocean Bank. The proceeds of the
original credit facility was used to:




| |   |                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | repay a $10.0 million short-term loan from
    Manuel D. Medina, our Chief Executive Officer, the proceeds of
    which we had used to fund the build out of the NAP of the
    Americas (Mr. Medina, in turn, used the $10.0 million
    to repay a personal $10.0 million short-term loan from
    Ocean Bank);
|
| |  | repay $3.5 million of debt that we owed to
    Ocean Bank under a line of credit personally guaranteed by
    Mr. Medina;                                                                                                                                                                                        
|
| |  | pay $1.2 million in loan costs related to
    the $48.0 million credit facility (including a $720,000
    commitment fee); and                                                                                                                                                                                   
|
| |  | fund the NAP of the Americas build out costs.                                                                                                                                                                                                                                                                    

Mr. Medina has personally guaranteed the
credit facility. In addition to Mr. Medinas personal
guarantee of the credit facility, and in order to obtain the
facility, Ocean Bank required Mr. Medina, prior to the bank
disbursing funds under the credit facility, to provide a
$5.0 million certificate of deposit to the bank as
collateral on certain personal loans that Mr. Medina has
with the bank and commit to accelerate the maturity date of
those personal loans to December 31, 2001. Subsequent to
September 2001, Mr. Medina and the bank extended the
maturity date on his personal loans, first to December 31,
2001 and later to July 1, 2002. In the event of our default
under the credit facility, Mr. Medina also agreed to
subordinate debt that we owed to him. Mr. Medina has repaid
part of those personal loans to Ocean Bank, leaving an
outstanding principal balance of approximately $4.6 million
as of December 31, 2003. On February 11, 2004,
Mr. Medina extended one loan with a principal balance of
approximately $3.3 million to February 11, 2005 and
made an interest payment of $63,500. On March 8, 2004,
Mr. Medina extended the maturity date on the other loan
which had a principal balance of approximately $1.3 million
to March 8, 2005 and made a $73,446 payment of principal
and interest.

In consideration of Mr. Medinas
agreeing to repay his indebtedness to Ocean Bank earlier than
otherwise required, pledging the certificate of deposit and
personally guaranteeing our credit facility and approximately
$21.0 million of construction payables, we entered into an
amended and restated employment agreement with him. Under the
terms of the amended and restated employment agreement, we will
indemnify Mr. Medina from any personal liability related to
his guarantees of our debt, use commercially reasonable efforts
to relieve Mr. Medina of all his guarantees of our debt,
provide up to $6.5 million of cash collateral to Ocean Bank
should Mr. Medina be unable to repay the personal loans
when due and provide a non interest-bearing $5.0 million
loan to Mr. Medina. Mr. Medina and we have agreed that
we have the right to withhold payment to him of $1,375,000 in
convertible debentures owned by him until the note receivable is
repaid. The note receivable from Mr. Medina is shown as an
adjustment to equity. The $48.0 million credit facility and
the note receivable from Mr. Medina were approved by our
board of directors.

In July 2002, we and Mr. Medina modified the
terms of his $5.0 million non-interest bearing note payable
to us. As amended, the note matures September 30, 2004 and
bears interest subsequent to September 5, 2002 at 2%, the
applicable federal rate. Interest is due in bi-annual
installments. We review the collectibility of this note on a
quarterly basis.

On April 30, 2003, Ocean Bank revised its
$44.0 million credit facility with us by converting
$15.0 million of the outstanding principal balance into
equity and extending the term of the remaining
$29.0 million until April 30, 2006. Concurrent with
this transaction, we paid all past due interest as of
March 31, 2003, plus accrued interest through
April 28, 2003 totaling approximately $1.6 million and
prepaid approximately $900,000 of interest. Under the new terms,
interest is payable quarterly at an annual rate of 5.25% for the
first twelve months and 7.5% thereafter.

Construction Payables:On November 8, 2002,
CRG, LLC entered into an agreement with Cupertino Electric,
Inc. to purchase our entire $18.5 million construction
payable (including accrued interest) to Cupertino. Under the
terms of their agreement, CRG was to pay Cupertino
$8.4 million for the $18.5 million of our debt. On
November 11, 2002, we entered into an agreement with CRG
that provided us with the option,

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upon the closing of the purchase of our debt by
CRG from Cupertino, to repay the entire debt at a discount by
either issuing shares of our common stock valued at $0.75 per
share or making a cash payment.


On December 5, 2002, CRG entered into an
agreement with Kinetics Mechanical Services, Inc. and Kinetics
Systems Inc. to purchase our entire $4.1 million
construction payable (including accrued interest) to Kinetics.
Under the terms of their agreement CRG was to pay Kinetics
$1.9 million. On December 5, 2002, we also entered
into an agreement with CRG that provided us the option, upon the
closing of the purchase of the debt by CRG from Kinetics, to
repay the entire debt at a discount by either issuing shares of
our common stock valued at $0.75 per share or making a cash
payment.

On April 30, 2003, CRG LLC completed
the purchase, at a discount, of our $22.6 million
construction payables (including accrued interest) to Cupertino
and Kinetics. Cupertino and Kinetics were construction
contractors for the NAP of the Americas. At the closing, the
construction payables were converted into 30,133,334 shares of
our common stock.

CRG was created by Mr. Christian Altaba, one
of our shareholders, for the purpose of buying our debt from
Cupertino Electric and Kinetics Mechanical Services. None of the
participants in CRG were or currently are our officers or
directors. There is no affiliation between CRG and Cupertino or
Kinetics. CRG is managed by Mr. Christian Altaba.

Convertible Debentures:On April 30, 2003, we issued
10% Subordinated Secured Convertible Debentures due
April 30, 2006 for an aggregate principal amount of
$25.0 million. The debt is convertible into shares of our
common stock at $0.50 per share. Interest is payable quarterly
beginning July 31, 2003. The debentures were issued in
exchange for $10.3 million in cash, $9.5 million in a
promissory note due in full May 30, 2003 and
$5.2 million of notes payable which were converted into the
Subordinated Debentures. Included in the $5.2 million is
$2.0 million of cash received in March 2003 in anticipation
of the transaction.

Convertible debt consists of the following:

|                                                                                                                                                                                                                                                                                                                            |  |           |            |      |  |   |            |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- | ---------- | ---- |  | - | ---------- | -
|                                                                                                                                                                                                                                                                                                                            |  |          
|                                                                                                                                                                                                                                                                                                                            |  | March 31,
|                                                                                                                                                                                                                                                                                                                            |  |          
|                                                                                                                                                                                                                                                                                                                            |  | 2004      |            | 2003
|                                                                                                                                                                                                                                                                                                                            |  |           |            |     
|Subordinated secured convertible debentures due
    April 30, 2006 and convertible into shares of our common
    stock at $0.50 per share. Interest at 10% is payable quarterly
    beginning July 31, 2003. (Carrying amount is presented net
    of unamortized beneficial conversion feature balance of
    $904,761)(1) |  | $         | 24,095,239 |      |  | $ |           |  
|Subordinated secured convertible debentures due
    December 31, 2005 and convertible into shares of our common
    stock at a weighted average conversion price of $2.14 per share.
    Interest at 13% is payable on each calendar quarter(1)                                                                             |  |           | 10,300,000 |      |  |   | 12,155,000 |  
|Subordinated secured convertible debentures due
    August 30, 2004 and convertible into shares of our common
    stock at a weighted average conversion price of $0.61 per share.
    Interest at 13.125% is payable on each calendar quarter(1)                                                                           |  |           | 2,750,000  |      |  |   | 2,750,000  |  
|                                                                                                                                                                                                                                                                                                                            |  |           |            |      |  |   |            |  
|                                                                                                                                                                                                                                                                                                                            |  | $         | 37,145,239 |      |  | $ | 14,905,000 |  
|Less: Current portion of convertible debt                                                                                                                                                                                                                                                                                   |  |           | (250,000   | )    |  |   | (900,000   | )
|                                                                                                                                                                                                                                                                                                                            |  |           |            |      |  |   |            |  
|Convertible debentures, less current portion                                                                                                                                                                                                                                                                                |  | $         | 36,895,239 |      |  | $ | 14,005,000 |  
|                                                                                                                                                                                                                                                                                                                            |  |           |            |      |  |   |            |  






|    |                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Debentures with a carrying value of $26,595,239
    were converted to equity in May 2004 and the remaining balance
    of $10,550,000 is expected to be paid in June 2004 with the
    proceeds from issuance of $75.0 million Senior Notes.

Supra Group, Inc., the maker of the
$9.5 million promissory note failed to pay but agreed on
June 16, 2003 to assign the note and the debenture to
Gigabyte, LLC, an entity newly formed by Paolo Amore, the son of
Guillermo Amore, one of our directors. Two of our directors,
Guillermo Amore and Miguel Rosenfeld,

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guaranteed payment and performance in accordance
with the amended terms of the note. As of September 22,
2003, we had collected the promissory note in full. In
connection with this transaction, we recognized a beneficial
conversion feature of $9.5 million, based on the
June 16, 2003 measurement date.


Other:In
August 2002, we modified the terms of a note payable to
TotalBank. The maturity date was extended until December 2002
with some principal payments to be made monthly and the
remaining principal and interest due at maturity. In conjunction
with the modification and extension of this note, we issued
400,000 shares of our common stock valued at $180,000 to a
shareholder who formerly guaranteed the note. On March 31,
2003, we entered into a forbearance agreement with TotalBank and
modified the terms of our note. Under the modified agreement
terms, we made principal payments of $100,000 and $125,000 in
April 2003 and May 2003, respectively, and TotalBank retained
the right to enforce accelerated remedies if we default on the
modified note. As of December 31, 2003, the modified note
had been assigned to JCH Aston Partners, LLC and we had not paid
$367,178 of principal balance due. In February 2004, we paid a
$15,000 fee to extend the modified note to March 31, 2004.
In April 2004, we further modified the terms of the note and
paid $150,000 thereon which amount was applied first to interest
and then to principal. We further agreed to extend the modified
note to July 5, 2004, increase the annual interest rate to
16%, and to pay down the modified note by an additional $50,000
on July 5, 2004. We were also responsible for nominal
attorneys fees in connection with this extension.

As of March 31, 2004, we had not paid
approximately $719,000 relating to a capital lease. We are
currently negotiating a payment plan.

As of March 31, 2004, we have not paid
approximately $489,000 related to our 2002 tangible property
taxes in Miami-Dade county, Florida. We have negotiated a
payment plan with the Tax Collector Public Service Office and
are current under the plan.

As of March 31, 2004, we had not paid
approximately $429,000 of accrued interest related to our
convertible debentures. This amount has been subsequently paid.

Between April 2003 and March 2004, we borrowed an
aggregate of $750,000 of short-term debt bearing interest at
10%. During the same period, we repaid $1,628,000 of our
short-term debt.

On October 30, 2002, we entered into an
agreement with Mr. Arturo Ehrlich to assist us in raising
capital. We issued warrants to purchase 1.2 million shares
of our common stock at $0.75 per share to Mr. Ehrlich
together with a cash payment of $180,000 as an advance for
future expenses. Mr. Ehrlich is a director of
SBP Investments, Inc., a corporation that lent us
$3.0 million in October 2002.

Guarantees and Commitments

The Technology Center of the Americas, LLC,
(TECOTA), an entity in which we have a 0.84%
membership interest, owns the building that leases the space to
us for the NAP of the Americas under a 20 year lease. The
construction of TECOTA was funded with $48.0 million in
equity and $35.4 million in construction financing from a
consortium of banks. We guaranteed this construction financing
during development and construction of TECOTA. After TECOTA was
built, some of the banks released us from their portion of the
guarantee, the result of which was to reduce the guarantee to
$5.5 million. As of March 31, 2004 the TECOTA debt
outstanding under the construction loan was $35.4 million
and is due on November 2005. We do not expect to fund any
amounts under our guarantee.

We guarantee up to $6.5 million in personal
debt of Manuel D. Medina, our Chief Executive Officer and
Chairman. See  Liquidity and Capital
Resources for details.

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

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The following table represents the minimum future
operating and capital lease payments for these commitments, as
well as the combined aggregate maturities for the following
obligations for each of the twelve months ended March 31:

|           |  |               |           |                  |  |               |             |                  |  |       |            |  |  |   |            |  |  |   |             | 
|---------- |  | ------------- | --------- | ---------------- |  | ------------- | ----------- | ---------------- |  | ----- | ---------- |  |  | - | ---------- |  |  | - | ----------- | 
|           |  | Capital lease |           |                  |  |               |             |                  |  |      
|           |  | obligations   |           | Operating leases |  | Notes Payable |             | Convertible debt |  | Total
|           |  |               |           |                  |  |               |             |                  |  |      
|2005       |  | $             | 1,799,727 |                  |  | $             | 4,750,745   |                  |  | $     | 9,194,145  |  |  | $ | 250,000    |  |  | $ | 15,994,617  | 
|2006       |  |               | 72,068    |                  |  |               | 6,809,342   |                  |  |       | 2,145,607  |  |  |   | 12,800,000 |  |  |   | 21,827,017  | 
|2007       |  |               | 28,510    |                  |  |               | 7,528,228   |                  |  |       | 29,142,360 |  |  |   | 25,000,000 |  |  |   | 61,699,098  | 
|2008       |  |               | 5,307     |                  |  |               | 7,651,497   |                  |  |       | 23,927     |  |  |   |            |  |  |   | 7,680,731   | 
|2009       |  |               |          |                  |  |               | 7,771,067   |                  |  |       |           |  |  |   |            |  |  |   | 7,771,067   | 
|Thereafter |  |               |          |                  |  |               | 164,136,131 |                  |  |       |           |  |  |   |            |  |  |   | 164,136,131 | 
|           |  |               |           |                  |  |               |             |                  |  |       |            |  |  |   |            |  |  |   |             | 
|           |  | $             | 1,905,612 |                  |  | $             | 198,647,010 |                  |  | $     | 40,506,039 |  |  | $ | 38,050,000 |  |  | $ | 279,108,661 | 
|           |  |               |           |                  |  |               |             |                  |  |       |            |  |  |   |            |  |  |   |             | 

New Accounting Pronouncements

In December 2003, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 104,
(SAB 104), Revenue Recognition. SAB 104 updates
portions of existing interpretative guidance in order to be
consistent with current authoritative accounting and auditing
guidance and SEC rules and regulations. The adoption of
SAB 104 did not have a material effect on our consolidated
financial statements.

In May 2003, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. This
Statement requires that an issuer classify financial instruments
which are within its scope as a liability. Most of the guidance
in SFAS No. 150 is effective for all financial instruments
entered into or modified after May 31, 2003, and otherwise
effective at the beginning of the first interim period beginning
after June 15, 2003. The impact of the adoption of
SFAS 150 on our consolidated financial statements was to
present Series H redeemable preferred stock as a liability.

In March 2003, the FASB reached a consensus on
Emerging Issues Task Force (EITF) Issue No. 00-21,
Revenue Arrangements with Multiple Deliverables. The
consensus provides guidance on the accounting for multiple
element revenue arrangements. It also provided guidance on how
to separate multiple element revenue arrangements into its
separate units of accounting and how to measure and allocate the
arrangements total consideration. The effective date of
EITF 00-21 is for revenue arrangements entered into in
fiscal periods (interim or annual) beginning after June 15,
2003. The adoption of EITF 00-21 as of July 1, 2003
has not impacted our consolidated financial statements.

In January 2003, the FASB issued
FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51. FIN 46 requires
certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the
entity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46
is effective immediately for all new variable interest entities
created or acquired after January 31, 2003. In December
2003, the FASB released a revised version of FIN 46
clarifying certain aspects of FIN 46 and providing certain
entities with exemptions from the requirements of FIN 46.
For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be
applied for the first interim or annual period ending after
March 15, 2004. NAP de las Americas-Madrid S.A. is a
variable interest entity but our current relationship indicates
that it does not require consolidation since we are not the
primary beneficiary. Our maximum related exposure to loss is
approximately $500,000 at March 31, 2004. We do not expect
the adoption of FIN 46 to have a significant impact in our
consolidated financial position or result of operations.

In April 2002, the FASB approved SFAS 145,
Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13 and Technical
Corrections. In addition to rescinding SFAS 4, 44,
and 64 and amending SFAS 13, SFAS 145 establishes a
financial reporting standard for classification of
extinguishment of debt in the financial statements in accordance
with APB 30. SFAS 145 is effective for our fiscal year
ended March 31, 2004. We do not expect the adoption of
SFAS 145 to have a material effect on the

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our financial position. However, SFAS 145
had an impact on the presentation of our results of operations
for the year ended March 31, 2004.


Risk Factors



| |                                                                                      
| | -------------------------------------------------------------------------------------
| | We may not be able to compete effectively
    in the market for data center services.

The market for data center services is extremely
competitive and subject to rapid technological change. Our
current and potential competitors include providers of data
center services, global, regional and local telecommunications
companies and Regional Bell Operating Companies, and information
technology outsourcing firms. Many of our existing competitors
have greater market presence and financial and personnel
resources than we do. Our competitors include Internet data
centers operated by established communications carriers such as
AT&T, Level 3, MCI and Qwest. We also compete with
providers of data services centers, regional Bell operating
companies that offer Internet access and information technology
outsourcing firms. The principal competitive factors in our
market include:



| |   |                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------
| |  | ability to deliver services when requested by the
    customer;                                               
|
| |  | Internet system engineering and other
    professional services expertise;                                    
|
| |  | customer service;                                                                                             
|
| |  | network capability, reliability, quality of
    service and scalability;                                      
|
| |  | variety of managed services offered;                                                                          
|
| |  | access to network resources, including circuits,
    equipment and interconnection capacity to other networks;
|
| |  | broad geographic presence;                                                                                    
|
| |  | price;                                                                                                        
|
| |  | ability to maintain and expand distribution
    channels;                                                     
|
| |  | brand name recognition;                                                                                       
|
| |  | timing of introductions of new services;                                                                      
|
| |  | physical and network security;                                                                                
|
| |  | financial resources; and                                                                                      
|
| |  | customer base.                                                                                                

Some of our competitors may be able to develop
and expand their data center services faster, devote greater
resources to the marketing and sale of their products and adopt
more aggressive pricing policies than we can. In addition, these
competitors have entered and will likely continue to enter into
business relationships to provide additional services that
compete with the services we provide.



| |                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.

Generally, U.S. Government contracts are
subject to oversight audits by government representatives, to
profit and cost controls and limitations, and to provisions
permitting modification or termination, in whole or in part,
without prior notice, at the governments convenience. In
some cases, government contracts are subject to the
uncertainties surrounding congressional appropriations or agency
funding. Government contracts are subject to specific
procurement regulations. Failure to comply with these
regulations and requirements could lead to suspension or
debarment from future government contracting for a period of
time.

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

On a proforma basis after the issuance of our
$75 million in 9% Senior Notes due June 15, 2009, and
application of the proceeds from the issuance, our total
liabilities are approximately $95.7 million, obligations
guaranteed by us were $10.1 million and our total
shareholders equity was $8.2 million.

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 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 services of key
personnel, particularly Manuel D. Medina, our Chairman. In an
attempt to reduce costs, we have eliminated some management
positions. Our potential growth and expansion and the merger and
integration of separate businesses, are expected to place
increased demands on our management skills and resources.
Therefore, our success also depends upon our ability to hire and
retain additional skilled and experienced management personnel.
Employment and retention of qualified personnel is important due
to the competitive nature of our industry.



| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | If we do not locate financial or strategic
    partners, we may have to delay or abandon expansion
    plans.

Expenditures commence well before a TerreNAP
Center opens, and it may take an extended period to approach
break-even capacity utilization. It takes a significant period
of time to select the appropriate location for a new TerreNAP
Center, construct the necessary facilities, install equipment
and telecommunications infrastructure and hire operations and
sales personnel. As a result, we expect that individual TerreNAP
Centers will experience losses for more than one year from the
time they are opened. As a part of our TerreNAP Center strategy,
we intend to rely on third-party financial or strategic partners
to fund the development costs. If we are unable to establish
such third-party relationships, we may delay or abandon some or
all of our development and expansion plans or otherwise forego
market opportunities, making it difficult for us to generate
additional revenue and to respond to competitive pressures.



| |                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our president, chairman and chief executive
    officer, cannot be removed without cause which could delay,
    defer or prevent change in control of our company or impede a
    merger, consolidation, takeover or other business
    combination.

Under the terms of our agreement with Manuel D.
Medina, our President, Chairman and Chief Executive Officer, as
long as Mr. Medinas guarantees of our debt exist, we
have agreed to nominate Mr. Medina to our board of
directors and not remove Mr. Medina, unless for good cause,
or remove any of our officers without Mr. Medinas
consent. This could delay, defer or prevent change in control of
our company or impede a merger, consolidation, takeover or other
business combination that you, as a stockholder, may otherwise
view favorably.

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| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | If the price of our shares remains low or
    our financial condition deteriorates, we may be delisted by the
    American Stock Exchange.

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



| |   |                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our financial condition and operating results
    appear to be unsatisfactory;                                                                                                                                                                                                            
|
| |  | it appears that the extent of public distribution
    or the aggregate market value of the securities has become so
    reduced as to make further dealings on the Amex inadvisable; or                                                                                                   
|
| |  | we have sustained losses which are so substantial
    in relation to our overall operations or our existing financial
    condition has become so impaired that it appears questionable
    whether we will be able to continue operations and/or meet our
    obligations as they mature.

For example, the Amex may consider suspension or
delisting of a stock if the stock has been selling for a
substantial period of time at a low price per share. Our common
stock has been trading at relatively low prices for the past
eighteen months and we have sustained net losses for the past
three fiscal years. Therefore, our common stock is at risk of
being delisted by the Amex. 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 rules it is likely that the
price of our common stock would decline and that our
stockholders would find it difficult to sell their shares.



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

Our NAP facilities are susceptible to regional
costs of power, electrical power shortages and planned or
unplanned power outages caused by these shortages. A power
shortage 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.



| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | Brazilian political and economic conditions
    may have an adverse impact on our operations.

Our results of operations and financial condition
may be affected by inflation in each country in which we manage
a facility. We maintain operations in Brazil, which has had in
the past, and may have now or in the future, a highly
inflationary economy, defined as cumulative inflation of about
100% or more over a three calendar year period. Future increases
in our costs may exceed the rate of inflation or the amounts, if
any, which we may be able to recover rom our customers.






|         |                                                                
|-------- | ---------------------------------------------------------------
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK.

We have not entered into any financial
instruments for trading or hedging purposes.

Our carrying values of cash and cash equivalents,
accounts receivable, accounts payable and accrued expenses is a
reasonable approximation of their fair value.

Our exposure to market risk resulting from
changes in interest rates relates primarily to our debt. An
immediate 10% increase or decrease in current interest rates
would furthermore not have a material impact on our debt
obligations due to the fixed nature of our debt obligations. 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

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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.


To date, over 99% 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 are
investigating opportunities 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).






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

None.






|         |                        
|-------- | -----------------------
|ITEM 9A. | CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and
Procedures

Based on their evaluation as of the end of the
period covered by this annual report on Form 10-K, our
Chief Executive Officer and our Chief Financial Officer have
concluded that our disclosure controls and procedures, as
defined in Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934, are effective to ensure that the
information required to be disclosed by us in reports that we
file under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods
specified in the SECs rules and forms and that such
information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial
Officer as appropriate to allow timely decisions regarding
required disclosure.

(b) Changes in Internal Controls

There were no material changes in our internal
control over financial reporting that occurred during the fourth
quarter of fiscal year 2004 that have materially affected, or
are reasonably likely to materially affect, our internal control
over financial reporting.

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|          |                   
|--------- | ------------------
|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 March 31, 2004, are as follows:

|                          |  |     |    |                    |  |                                                                 
|------------------------- |  | --- | -- | ------------------ |  | ----------------------------------------------------------------
|Name                      |  | Age |    | Principal Position
|                          |  |     |    |                   
|Manuel D. Medina          |  |     | 51 |                    |  | Chairman of the Board, President and Chief
    Executive Officer
|Joseph R. Wright, Jr.     |  |     | 65 |                    |  | Vice Chairman of the Board                                      
|Guillermo Amore           |  |     | 65 |                    |  | Director                                                        
|Timothy Elwes             |  |     | 68 |                    |  | Director                                                        
|Antonio S. Fernandez      |  |     | 64 |                    |  | Director                                                        
|Fernando Fernandez-Tapias |  |     | 65 |                    |  | Director                                                        
|Jose Maria Figueres-Olsen |  |     | 49 |                    |  | Director                                                        
|Arthur L. Money           |  |     | 64 |                    |  | Director                                                        
|Marvin S. Rosen           |  |     | 62 |                    |  | Director                                                        
|Miguel J. Rosenfeld       |  |     | 54 |                    |  | Director                                                        
|Rodolfo A. Ruiz           |  |     | 56 |                    |  | Director                                                        
|Jamie Dos Santos          |  |     | 42 |                    |  | Chief Marketing Officer                                         
|Jose E. Gonzalez          |  |     | 43 |                    |  | Chief Legal Officer and Secretary                               
|Jose A. Segrera           |  |     | 33 |                    |  | Chief Financial Officer                                         
|Marvin Wheeler            |  |     | 49 |                    |  | Chief Operations Officer                                        

Manuel D. Medinahas
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 its founding in 1982. In
addition, Mr. Medina is a managing partner of
Communications Investors Group, the holder of the Series G
preferred stock. 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. Prior to
that, Mr. Wright served as Chairman of the Board from May
1995 to April 2000, when Terremark Holdings, Inc. concluded a
reverse merger into Amtec Inc., a telecommunications company of
which he was Chairman and Chief Executive Officer.
Mr. Wright currently is President and Chief Executive
Officer of PanAmSat, a global provider of satellite-based
communication services. He is also a director of The Titan
Corporation. 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 1996
to 2000. 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,
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.

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Guillermo Amorehas
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 Elweshas
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. Fernandezwas 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. He graduated from Pace University, NY in
1968 with a B.B.A.

Fernando
Fernandez-Tapiashas 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. Fernández-Tapias founded Roll-On Roll-Off,
Interpuertos, Spain Shipping, Naviera Amura and Naviera Roda.
Mr. Fernández-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. Fernández-Tapias holds a degree from the Instituto
Internacional de Empresas de la Universidad Comercial de Deusto.

Jose Maria
Figueres-Olsenhas served as a member
of our board of directors since October 2000.
Mr. Figueres-Olsen is the former President of Costa Rica,
serving as the head of state of his native country from 1994 to
1998, during which he made sustainable development the
cornerstone of his administration and led his country into the
digital economy through the implementation of several IT
programs and the attraction of foreign investment including
Intel. Since leaving office, President Figueres-Olsen has served
as a Director of the Digital Nations Consortium, launched by the
MIT Media Lab to develop a new generation of technologies and
applications that enable people to design, create, and learn new
ways to become more active participants in developing societies.
President Figueres-Olsen also serves on the Board of Directors
of the World Resources Institute, the World Wildlife Fund, the
Stockholm Environment Institute, and Leadership in Environment
and Development. President Figueres-Olsen holds a degree in
Industrial Engineering from the United States Military Academy
at West Point and a Masters degree in Public Administration
(Mason Fellow) from the John F. Kennedy School of
Government at Harvard University.

Arthur L. Moneyhas
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 Rainbow Technologies, Inc., 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

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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. Rosenhas
served as a member of our board of directors since April 2000.
Mr. Rosen is a co-founder 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 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,
Bio-Medical Disposal, Inc., since 1998 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. Rosenfeldhas 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. Ruizhas
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 Santoshas
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.

Jose E. Gonzalezhas
served as our Chief Legal Officer and Secretary since November
2003. Previously he served as our Senior Vice President, General
Counsel and Secretary since January 2001. Prior to joining
Terremark, Mr. Gonzalez served as the Vice President and
Regional Counsel for Sunbeam Corporation, responsible for legal
affairs throughout Canada, Latin America/ Caribbean and Asia.
From 1995 to 1998, Mr. González was Assistant General
Counsel, International, responsible for the international legal
affairs of Blockbuster Entertainment, a subsidiary of Viacom,
Inc. From 1990 to 1995 Mr. González was a member of
the General Counsels Office of the American Express
Company, where he served as Regional Counsel for Latin America
and the Caribbean. Mr. González received his Bachelors
of Arts degree from Fordham University in 1982 and his Juris
Doctor from Fordham University School of Law in 1985. He is a
member of the Bar of the State of New York and certified to
practice as in-house counsel by the Bar of the State of Florida.

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Jose A. Segrerahas
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 Wheelerhas
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.

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, 2004, all Section 16(a) filing requirements
applicable to our officers, directors and greater than 10%
beneficial owners were complied with, except Antonio S.
Fernandez was late in filing a Form 3 when he became a
director; and Jose Maria Figueres-Olsen filed a late Form 4
reporting three transactions.

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 and has determined
that both Antonio S. Fernandez and Rodolfo A. Ruiz qualify as
audit committee financial experts as defined in
Item 401(h)(2) of Regulation S-K.

Code of Ethics

We maintain a Code of Ethics that is applicable
to our CEO and Senior Financial Officers. This code requires
continued observance of high ethical standards such as honesty,
integrity and compliance with the law in the conduct of the our
business. Violations under the code of ethics must be reported
to the 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.

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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.

|                                     |  |                     |      |              |  |             |         |           |  |  |         |  |  |  |         | 
|------------------------------------ |  | ------------------- | ---- | ------------ |  | ----------- | ------- | --------- |  |  | ------- |  |  |  | ------- | 
|                                     |  |                     |      |              |  |             |         | Long Term
|                                     |  |                     |      | Compensation
|                                     |  | Annual Compensation |      | Awards      
|                                     |  |                     |      |             
|                                     |  | Fiscal              |      | Salary       |  | Commissions |         | Options/ 
|Name and Principal Position          |  | Year                |      | ($)          |  | ($)         |         | SARS (#) 
|                                     |  |                     |      |              |  |             |         |          
|Manuel D. Medina                     |  |                     | 2004 |              |  |             | 350,000 |           |  |  |        |  |  |  |        | 
|Chairman of the Board, President and |  |                     | 2003 |              |  |             | 350,000 |           |  |  |        |  |  |  |        | 
|Chief Executive Officer              |  |                     | 2002 |              |  |             | 350,000 |           |  |  |        |  |  |  | 100,000 | 
|Jamie Dos Santos,                    |  |                     | 2004 |              |  |             | 250,000 |           |  |  | 104,000 |  |  |  | 200,000 | 
|Chief Marketing Officer              |  |                     | 2003 |              |  |             | 250,000 |           |  |  | 23,000  |  |  |  | 275,000 | 
|                                     |  |                     | 2002 |              |  |             | 175,000 |           |  |  | 75,000  |  |  |  | 200,000 | 
|Jose A. Segrera                      |  |                     | 2004 |              |  |             | 195,000 |           |  |  |        |  |  |  | 100,000 | 
|Chief Financial Officer              |  |                     | 2003 |              |  |             | 170,000 |           |  |  |        |  |  |  | 100,000 | 
|                                     |  |                     | 2002 |              |  |             | 170,000 |           |  |  |        |  |  |  | 200,000 | 
|Marvin Wheeler,                      |  |                     | 2004 |              |  |             | 195,000 |           |  |  |        |  |  |  | 200,000 | 
|Chief Operations Officer             |  |                     | 2003 |              |  |             | 175,000 |           |  |  |        |  |  |  | 100,000 | 
|                                     |  |                     | 2002 |              |  |             | 135,000 |           |  |  |        |  |  |  | 105,000 | 
|Jose E. Gonzalez,                    |  |                     | 2004 |              |  |             | 185,000 |           |  |  |        |  |  |  | 50,000  | 
|Chief Legal Officer                  |  |                     | 2003 |              |  |             | 185,000 |           |  |  |        |  |  |  | 75,000  | 
|and Secretary                        |  |                     | 2002 |              |  |             | 175,000 |           |  |  |        |  |  |  | 200,000 | 

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, 2004 to our named executive officers. No
stock appreciation rights were granted during the fiscal year
ended March 31, 2004.

|                  |  |                    |         |                 |  |          |   |            |  |                      |      |     |  |  |        |  |  |  |        |  |  |  |        | 
|----------------- |  | ------------------ | ------- | --------------- |  | -------- | - | ---------- |  | -------------------- | ---- | --- |  |  | ------ |  |  |  | ------ |  |  |  | ------ | 
|                  |  |                    |         |                 |  |          |   |            |  |                     
|                  |  |                    |         |                 |  |          |   |            |  | Potential Realizable
|                  |  |                    |         |                 |  |          |   |            |  | Value At Assumed    
|                  |  |                    |         |                 |  |          |   |            |  | Annual Rates Of     
|                  |  |                    |         |                 |  |          |   |            |  | Stock Price         
|                  |  | Appreciation For  
|Individual Grants |  | Option Term(1)    
|                  |  |                   
|                  |  | Number of          |         | % of Total      |  |          |   |           
|                  |  | Securities         |         | Options Granted |  | Exercise |   |            |  |                     
|                  |  | Underlying Options |         | to Employees in |  | Price    |   | Expiration |  | 5%                   |      | 10%
|Name              |  | Granted(#)         |         | Fiscal Year     |  | ($/Sh)   |   | Date       |  | ($)                  |      | ($)
|                  |  |                    |         |                 |  |          |   |            |  |                      |      |    
|Manuel D. Medina  |  |                    |         |                 |  |          |   |            |  |                      |      |     |  |  |        |  |  |  |        |  |  |  |        | 
|Jose A. Segrera   |  |                    | 100,000 |                 |  |          | 2 | %          |  |                      | 0.33 |     |  |  | 4/1/13 |  |  |  | 18,194 |  |  |  | 44,812 | 
|Jose E. Gonzalez  |  |                    | 50,000  |                 |  |          | 1 | %          |  |                      | 0.33 |     |  |  | 4/1/13 |  |  |  | 9,097  |  |  |  | 22,406 | 
|Jamie Dos Santos  |  |                    | 200,000 |                 |  |          | 4 | %          |  |                      | 0.33 |     |  |  | 4/1/13 |  |  |  | 36,388 |  |  |  | 89,625 | 
|Marvin Wheeler    |  |                    | 200,000 |                 |  |          | 4 | %          |  |                      | 0.33 |     |  |  | 4/1/13 |  |  |  | 36,388 |  |  |  | 89,625 | 



---



|    |                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.

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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, 2004 and options
they held on March 31, 2004. No stock appreciation rights
were granted during the fiscal year ended March 31, 2004.

|                 |  |             |   |          |  |                            |   |                       |  |             |         |               |  |  |         |  |  |   |        |  |  |   |        | 
|---------------- |  | ----------- | - | -------- |  | -------------------------- | - | --------------------- |  | ----------- | ------- | ------------- |  |  | ------- |  |  | - | ------ |  |  | - | ------ | 
|                 |  |             |   |          |  |                            |   |                      
|                 |  |             |   |          |  | Number of Securities       |   | Value of Unexercised 
|                 |  |             |   |          |  | Underlying Unexercised     |   | In-the-Money Options 
|                 |  | Shares      |   |          |  | Options at Fiscal Year End |   | at Fiscal Year End(1)
|                 |  | Acquired on |   | Value    |  |                            |   |                      
|Name             |  | Exercise    |   | Realized |  | Exercisable                |   | Unexercisable         |  | Exercisable |         | Unexercisable
|                 |  |             |   |          |  |                            |   |                       |  |             |         |              
|Manuel D. Medina |  |             |  |          |  |                            |  |                       |  |             | 200,000 |               |  |  |        |  |  |   |       |  |  |   |       | 
|Jose A. Segrera  |  |             |  |          |  |                            |  |                       |  |             | 383,334 |               |  |  | 166,666 |  |  | $ | 33,667 |  |  | $ | 36,333 | 
|Jose E. Gonzalez |  |             |  |          |  |                            |  |                       |  |             | 350,000 |               |  |  | 125,000 |  |  | $ | 23,667 |  |  | $ | 21,583 | 
|Jamie Dos Santos |  |             |  |          |  |                            |  |                       |  |             | 533,000 |               |  |  | 291,667 |  |  | $ | 71,167 |  |  | $ | 74,583 | 
|Marvin Wheeler   |  |             |  |          |  |                            |  |                       |  |             | 255,001 |               |  |  | 199,999 |  |  | $ | 43,334 |  |  | $ | 60,666 | 



---



|    |                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Based on a per share price of $0.72, the closing
    price of the common stock as reported on the American Stock
    Exchange on March 31, 2004, 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. Upon their election as a
member of our board of directors, each director received
100,000 stock options. Our employee directors receive the
same compensation as our non-employee directors. The options
granted to our directors vest as follows: options to purchase
one-third of the shares vest as of the date of grant, one-third
vests as of the first anniversary of the date of grant, and
one-third vests as of the second anniversary of the date of
grant. We reimburse our directors for all out-of-pocket expenses
incurred in the performance of their duties as directors. We
currently 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 entered into a one year
agreement, commencing March 10, 2000, employing him as our
President and Chairman of the Board. On September 6, 2001,
in consideration of Mr. Medina agreeing to repay his
indebtedness to Ocean Bank earlier than otherwise required,
pledging a certificate of deposit to the bank and personally
guaranteeing our credit facility and approximately
$21 million of construction payables,
Mr. Medinas employment agreement was amended and
restated. The term of the amended and restated agreement
commenced April 28, 2001 and employs Mr. Medina as our
President, Chief Executive Officer and Chairman of the Board.
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.
Additionally, as long as Mr. Medinas guarantees of
our debt exist, we have agreed to nominate Mr. Medina to
our Board of Directors and not remove Mr. Medina, unless
for good cause, or remove any of our officers from their
positions without Mr. Medinas consent. 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.

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

41



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one year period following termination of her
employment. In April 2003, Ms. Dos Santos became our Chief
Marketing Officer.


Jose E. Gonzalez has entered into an agreement,
commencing March 3, 2003, employing him as our Senior Vice
President and General Counsel. The agreement is for an
indefinite term until either party gives written notice of its
intention not to terminate. The agreement provides for an annual
base salary of $185,000 and is subject to increases. Pursuant to
the terms of his agreement, Mr. Gonzalez is prohibited from
competing with us for a one year period following termination of
his employment.

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 Senior
Vice President and Chief Financial Officer. The agreement
provides for an annual base salary of $150,000 and is subject to
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.

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 and
is subject to 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. In November
2003, Mr. Wheeler became our Chief Operations Officer.

If the employment of either Manuel D. Medina or
Jose A. Segrera is terminated without cause, 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, Jose E.
González or Marvin Wheeler is terminated without cause,
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 any of Manuel D. Medina,
Jamie Dos Santos, Jose E. González, Jose A. Segrera or
Marvin Wheeler 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 certain other benefits. The definition of a change in
control in the applicable employment agreements includes
the resignation of Manuel D. Medina as both our Chairman and
Chief Executive Officer, his death, or his absence from our 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 2004 fiscal year: Timothy
Elwes, 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. No executive officer of ours serves as a
member of the compensation committee of any entity one or more
of whose executive officers serves as a member of our board of
directors or compensation committee. There were no compensation
committee interlocks during fiscal 2004.

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|         |                                                                                                    
|-------- | ---------------------------------------------------------------------------------------------------
|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, 2004, by:



| |   |                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | each of our directors and director nominees;                                                                                                                                          
|
| |  | each of our executive officers named in the
    Executive Compensation Table;                                                                                                         
|
| |  | 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 G Preferred
    Stock, Series H Preferred Stock and Series I Preferred
    Stock.

As of March 31, 2004, we had
311,227,482 shares of our common stock outstanding,
20 shares of Series G Convertible Preferred Stock
outstanding, 294 shares of Series H Convertible
Preferred Stock outstanding and 400 shares of Series I
Convertible Preferred Stock outstanding. The outstanding shares
of Series G, Series H and Series I Convertible
Preferred Stock, as of March 31, 2004, were convertible
into 2,143,492; 294,000; and 13,333,600 shares of our
common stock, respectively.

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 March 31,
2004 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 March 31, 2004, have been
exercised. Unless otherwise indicated, we believe that all
persons named in this table have sole voting power and investment

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power over all the shares beneficially owned by
them. Unless otherwise indicated, the address of each person
listed in the following table is 2601 South Bayshore
Drive, Miami, Florida 33133.


|                                     |                                                                        |                         |  |              |      |  |  |       | 
|------------------------------------ | ---------------------------------------------------------------------- | ----------------------- |  | ------------ | ---- |  |  | ----- | 
|                                     |                                                                        | Amount and Nature of    |  | Percent     
|Name and Address of Beneficial Owner |                                                                        | Beneficial Ownership(1) |  | of Class (%)
|                                     |                                                                        |                         |  |             
|Common Stock:                        |                                                                        |                         |  |              |      |  |  |      
|                                     | Manuel D. Medina                                                       |                         |  | 44,705,282   | (2)  |  |  | 14.2  | 
|                                     | Joseph R. Wright, Jr.                                                  |                         |  | 4,265,042    | (3)  |  |  | 1.4   | 
|                                     | Guillermo Amore                                                        |                         |  | 5,948,265    | (4)  |  |  | 1.9   | 
|                                     | Marvin S. Rosen                                                        |                         |  | 1,362,150    | (5)  |  |  | *     | 
|                                     | Miguel J. Rosenfeld                                                    |                         |  | 2,586,855    | (6)  |  |  | *     | 
|                                     | Jose Maria Figueres-Olsen                                              |                         |  | 300,000      | (7)  |  |  | *     | 
|                                     | Timothy Elwes                                                          |                         |  | 200,000      | (7)  |  |  | *     | 
|                                     | Antonio S. Fernandez                                                   |                         |  | 316,884      | (8)  |  |  | *     | 
|                                     | Fernando Fernandez-Tapias                                              |                         |  | 66,667       | (9)  |  |  | *     | 
|                                     | Arthur L. Money                                                        |                         |  | 34,000       | (9)  |  |  | *     | 
|                                     | Rodolfo A. Ruiz                                                        |                         |  | 34,000       | (9)  |  |  | *     | 
|                                     | Jaime Dos Santos                                                       |                         |  | 533,000      | (9)  |  |  | *     | 
|                                     | Marvin Wheeler                                                         |                         |  | 255,001      | (9)  |  |  | *     | 
|                                     | Jose A. Segrera                                                        |                         |  | 383,334      | (9)  |  |  | *     | 
|                                     | Jose E. Gonzalez                                                       |                         |  | 350,000      | (9)  |  |  | *     | 
|                                     | Ocean Bank                                                             |                         |  | 20,000,000   | (10) |  |  | 6.4   | 
|                                     | Sun Equity Assets Limited                                              |                         |  | 29,909,128   | (11) |  |  | 9.6   | 
|                                     | Paradise Stream (Delaware) LLC                                         |                         |  | 25,000,000   | (12) |  |  | 8.0   | 
|                                     | All directors and executive officers as a group
    (13 persons)       |                         |  | 60,592,483   |      |  |  | 18.8  | 
|Series G Preferred Stock:            |                                                                        |                         |  |              |      |  |  |      
|                                     | Communications Investors Group                                         |                         |  | 20           | (13) |  |  | 100.0 | 
|Series H Preferred Stock:            |                                                                        |                         |  |              |      |  |  |      
|                                     | One Vision Worldwide, LLC                                              |                         |  | 294          | (14) |  |  | 100.0 | 
|Series I Preferred Stock:            |                                                                        |                         |  |              |      |  |  |      
|                                     | Louisa Stude Sarofim 2004 Terremark Grantor
    Retained Annuity Trust |                         |  | 80           | (15) |  |  | 20.0  | 
|                                     | Guazapa Properties, Inc.                                               |                         |  | 48           | (16) |  |  | 12.0  | 
|                                     | CRG, LLC                                                               |                         |  | 100          | (17) |  |  | 25.0  | 
|                                     | Asturpizza, S.A.                                                       |                         |  | 20           | (18) |  |  | 5.0   | 
|                                     | CIG Investments, LLLP                                                  |                         |  | 40           | (19) |  |  | 10.0  | 
|                                     | Promociones Bursatiles, S.A.                                           |                         |  | 28           | (20) |  |  | 7.0   | 



---



| |   |                         
| | - | ------------------------
| | * | Represents less than 1%.



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | For purposes of this table, beneficial ownership
    is computed pursuant to Rule 13d-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 vote or direct the voting of such security
    or the power to 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 200,000 shares of common stock
    underlying options and 889,277 shares of common stock underlying
    convertible debentures. As reported in Mr. Medinas
    Schedule 13D, and any amendments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     | thereto, filed with the Securities and Exchange
    Commission on October 4, 2002, these include 7,021,682
    shares as to which Mr. Medina has sole voting power but
    does not have dispositive power. Includes 2,143,492 shares of
    common stock which may be acquired upon conversion of the
    Series G Preferred Stock held by Communications Investors
    Group, an entity in which Mr. Medina is a partner and holds
    a 50% interest.                                                                                                                                                                                                                                                                                                                                                                             
|
| | (3) | Includes 3,400,000 shares of common stock
    underlying options and 10,000 shares owned by
    Mr. Wrights sibling, over which Mr. Wright has
    investment control. Does not include 50,000 shares held in trust
    for the benefit of Mr. Wrights grandchildren with
    respect to which Mr. Wright disclaims beneficial ownership.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | (4) | Includes 200,000 shares underlying options,
    400,008 shares which may be acquired upon the conversion of
    shares of Series I Preferred Stock and 84,000 shares
    underlying warrants. Also includes 843,936 shares, 2,154,201
    shares underlying convertible debentures, 280,006 shares which
    may be acquired upon the conversion of shares of Series I
    Preferred Stock and 58,800 shares underlying warrants which are
    owned by an entity with respect to which Mr. Amore
    disclaims beneficial ownership except to the extent of his
    pecuniary interest therein. Does not include 1,745,550 shares
    and 580,000 shares underlying convertible debentures held in a
    trust for the benefit of Mr. Amores grandchildren,
    with respect to which Mr. Amore disclaims beneficial
    ownership.
|
| | (5) | Includes 245,000 shares of common stock
    underlying options and 205,810 shares underlying convertible
    debentures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | (6) | Includes 200,000 shares of common stock
    underlying options and 1,137,208 shares held indirectly by
    Mr. Rosenfeld. Does not include 58,105 shares held by
    Mr. Rosenfelds children and mother, with respect to
    which Mr. Rosenfeld disclaims beneficial ownership.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | (7) | Includes 200,000 shares of common stock
    underlying options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | (8) | Includes 34,000 shares of common stock underlying
    options and 242,884 shares of common stock underlying
    convertible debentures held by an entity with respect to which
    Mr. Fernandez disclaims beneficial ownership except to the
    extent of his pecuniary interest therein.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | (9) | Represents shares of common stock underlying
    options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            



|     |                                                                                                                                                                                                                                                                                      
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 this
    entity.                                                                                                
|    
|(12) | The address of the beneficial owner is P.O. Box
    N-65, Charlotte House, Charlotte Street, Nassau, Bahamas.
    Francis Lee is the natural person deemed to be the beneficial
    owner of the shares held by this entity.                                                         
|    
|(13) | Represents 20 shares of Series G
    Convertible Preferred Stock which are convertible into
    2,143,492 shares of common stock. The partners of
    Communications Investors Group are Manuel D. Medina and Andres
    Altaba, each of whom has a 50% interest.                    
|    
|(14) | Represents 294 shares of Series H
    Convertible Preferred Stock which are convertible into, and have
    voting rights equivalent to, 294,000 shares of common stock.                                                                                                              
|    
|(15) | Represents 80 shares of Series I
    Convertible Preferred Stock which are convertible into, and have
    voting rights equivalent to, 2,666,720 shares of common
    stock.                                                                                                         
|    
|(16) | Represents 48 shares of Series I
    Convertible Preferred Stock which are convertible into, and have
    voting rights equivalent to, 1,600,032 shares of common
    stock. Heinrich Adolf Hans Herweg is the natural person with
    voting and investment control over the shares.
|    
|(17) | Represents 100 shares of Series I
    Convertible Preferred Stock which are convertible into, and have
    voting rights equivalent to, 3,333,400 shares of common
    stock. Christian Altaba is the natural person with voting and
    investment control over the shares.         
|    
|(18) | Represents 20 shares of Series I
    Convertible Preferred Stock which are convertible into, and have
    voting rights equivalent to, 666,680 shares of common stock.
    Antonio De Reguero is the natural person with voting and
    investment control over the shares.          

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##### Table of Contents





|     |                                                                                                                                                                                                                                                                                   
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(19) | Represents 40 shares of Series I
    Convertible Preferred Stock which are convertible into, and have
    voting rights equivalent to, 1,333,360 shares of common
    stock. Vincente Perez Cisneros is the natural person with voting
    and investment control over the shares.
|    
|(20) | Represents 28 shares of Series I
    Convertible Preferred Stock which are convertible into, and have
    voting rights equivalent to, 933,352 shares of common
    stock. Roberto Solis Monsato is the natural person with voting
    and investment control over the shares.    

Equity Compensation Plan Information

This table summarizes share and exercise price
information about our equity compensation plans as of
March 31, 2004.

|                                                               |  |                      |            |                      |  |                       |        |  |  |  |           | 
|-------------------------------------------------------------- |  | -------------------- | ---------- | -------------------- |  | --------------------- | ------ |  |  |  | --------- | 
|                                                               |  | 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     |  |                      | 15,852,731 |                      |  | $                     | 1.96   |  |  |  | 6,647,269 | 
|Equity compensation plans not approved by
    security holders |  |                      | 900,000    |                      |  | $                     | 0.6700 |  |  |  | 100,000   | 






|         |                                                   
|-------- | --------------------------------------------------
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED
    TRANSACTIONS

On March 31, 2004, Guillermo Amore, one of
our directors, purchased 12 shares of our Series I 8%
Convertible Preferred Stock. and Margui Family Partners, Ltd.,
an entity in which Mr. Amore has an interest, purchased
8.4 shares of our Series I 8% Convertible Preferred
Stock. As payment for the shares, Mr. Amore issued a note
for $300,000 and Margui Family Partners, Ltd. issued a note for
$210,000. Both notes bear interest at 10%. Mr. Amore and we
have agreed to set off these notes against our debentures held
by Mr. Amore.

Upon conversion of outstanding promissory notes
in April 2002, two of our directors, Guillermo Amore and Miguel
Rosenfeld, received 1,501,503 shares and
1,134,641 shares of our common stock, respectively. The
original principal amounts of the notes converted by
Messrs. Amore and Rosenfeld were $1,126,127 and $850,980,
respectively. The conversion price of $0.75 per share was
determined by our management and approved by the board of
directors, with Messrs. Amore and Rosenfeld abstaining,
after considering recent quoted market prices of our stock,
recent equity transactions and our business plan and financial
projections.

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 September 5, 2001, we closed on a
$48.0 million credit facility with Ocean Bank. In addition
to Mr. Medina personally guaranteeing the credit facility,
and in order for us to obtain the facility, the bank further
required Mr. Medina to, prior to the bank disbursing funds
under the credit facility, we provide a $5.0 million
certificate of deposit to the bank as collateral for certain
personal loans Mr. Medina has with the bank and commit to
accelerate the maturity date of those personal loans to
December 31, 2001. Subsequent to September 2001,
Mr. Medina and the bank changed the maturity date on the
personal loans, first to December 31, 2001 and later to
July 1, 2002. Mr. Medina also agreed to subordinate
debt that we owed to Mr. Medina in the event of our default
under the credit facility. Mr. Medina has repaid part of
those personal loans to Ocean Bank, leaving an outstanding
principal balance of approximately $4.6 million as of
December 31, 2003. On February 11, 2004,
Mr. Medina extended one loan with a principal amount of
approximately $3.3 million to February 11, 2005 and
made an interest payment of $63,500. On March 8, 2004,

46



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##### Table of Contents



Mr. Medina extended the maturity date on the
other loan which had a principal amount of approximately
$1.3 million to March 8, 2005 and made a $73,446
payment of principal and interest.


On September 5, 2001, in consideration of
Mr. Medina agreeing to repay his indebtedness to the bank
earlier than otherwise required, pledging the certificate of
deposit to the bank and personally guaranteeing the
$48 million credit facility and approximately
$21 million of construction payables, we entered into an
amended and restated employment agreement with him. Under the
terms of the amended and restated employment agreement we will
indemnify Mr. Medina from any personal liability related to
his guarantees of any of our debt, use commercially reasonable
efforts to relieve Mr. Medina of all his guarantees of our
debt, provide up to $6.5 million of cash collateral to the
bank should Mr. Medina be unable to repay the personal
loans when due and provide a non interest-bearing
$5.0 million loan to Mr. Medina. If the promissory
note becomes in default, we have the right of offset against all
amounts payable by us to Mr. Medina, which is approximately
$2.2 million as of March 31, 2002. Additionally, as
long as Mr. Medinas guarantees of our debt exist, we
have agreed to nominate Mr. Medina to our Board of
Directors and not remove Mr. Medina, unless for good cause,
or remove any of our officers without Mr. Medinas
consent. There was no change in the amount or timing of
Mr. Medinas cash or non-cash compensation in
connection with these agreements, nor did Mr. Medina
receive any guarantee fee or other fees in connection with his
guaranteeing our indebtedness. We do not anticipate funding the
$6.5 million of cash collateral.

No fee was paid to Mr. Medina for his
guarantee of the Ocean Bank loan. In July 2002, the terms of our
$5 million loan to Mr. Medina were amended. The
amended note has a maturity date of September 30, 2004 and
bears interest subsequent to September 5, 2002.

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.

In April 2003, in connection with the issuance of
the Subordinated Debentures we received $400,000 from two
directors, Joseph Wright and Jose Maria Figueres-Olsen, and
$50,000 from an employee and shareholder.

One of our subsidiaries, Terremark Financial
Services, Inc. acts as consultant to a subsidiary of Fusion
Telecommunications International, Inc., in connection with
telecommunications operations in China. Messrs. Medina, Rosen
and Wright are directors of Fusion. During the year ended
March 31, 2004, we purchased approximately $500,000 in
services from Fusion.

Included in interest income is approximately
$61,000 from a $5.0 million receivable from Mr. Medina.




ITEM 14.     PRINCIPAL
ACCOUNTANT FEES AND SERVICES

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

Audit
Fees

We were billed $384,000 and $329,000, and in
aggregate, by PricewaterhouseCoopers LLP for professional
services rendered for the audit of our annual financial
statements for the fiscal years ended March 31, 2004 and
2003, respectively, and the reviews of the financial statements
included in our filings on Forms 10-Q for those fiscal
years.

Audit
Related Fees

PricewaterhouseCoopers LLP did not provide any
assurance or related services, other than the audit and review
services described above, for the fiscal years ended
March 31, 2004 and 2003.

47



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##### Table of Contents



Tax
Fees

PricewaterhouseCoopers LLP did not provide any
tax compliance, tax advise or tax planning services, for the
fiscal years ended March 31, 2004.

All
Other Fees

PricewaterhouseCoopers LLP did not provide any
products or services, other than the audit and review services
described above, for the fiscal years ended March 31, 2004
and 2003. PricewaterhouseCoopers LLP did not provide any
services related to financial information systems design and
implementation during the fiscal years ended March 31, 2004
and 2003.

Pre-Approval
Policy

All audit and non-audit services performed by
PricewaterhouseCoopers LLP must be pre-approved by the Audit
Committee.




PART IV.




ITEM 15.     EXHIBITS,
FINANCIAL STATEMENT SCHEDULES AND REPORT ON
FORM 8-K.

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

1. Financial Statements

(a) 1 and 2. The financial statements listed
in the accompanying Table of Contents to Consolidated Financial
Statements and Financial Statement Schedule on page F-1 herein
are filed as part of this report.

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
|        |     |                    
|        | 2.1 |                     |  | Agreement for Sale of Assets by and between ITV
    Communications, Inc. and Netmatics, Inc., dated January 11,
    1996, and Promissory Note and Security Agreement dated
    January 16, 1996 (previously filed as part of the
    Companys Current Report on Form 8-K dated
    January 19, 1996)                                      
|        | 2.2 |                     |  | Agreement of Merger between AVIC Group
    International, Inc., a Colorado corporation, with and into AVIC
    Group International, Inc., a Delaware corporation dated
    July 10, 1996 (previously filed as an exhibit to the
    Companys Registration Statement on Form S-3, as
    amended, filed on March 11, 2003)                 
|        | 2.3 |                     |  | Agreement and Plan of Merger by and between
    Terremark Holdings, Inc. and AmTec, Inc., dated as of
    November 24, 1999, as amended by that certain Amendment to
    Agreement and Plan of Merger, dated as of February 11, 2000
    (previously filed as part of the Companys Definitive Proxy
    Statement filed on March 24, 2000)
|        | 2.4 |                     |  | Letter Agreement dated January 12, 2001
    among MP Telecom, LLC, Terremark Worldwide, Inc., Clifford J.
    Preminger, Thomas M. Mulroy and Manuel Medina (previously filed
    as part of the Companys Current Report on Form 8-K
    dated February 28, 2001)                                                                         
|        | 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 |                     |  | 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)                                                                                                                                                                                          

48



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##### Table of Contents



|        |       |                     |  |                                                                                                                                                                                                                                                                                                             
|------- | ----- | ------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                    
|Number  |       | Exhibit Description
|        |       |                    
|        | 3.4   |                     |  | Certificate of Designations of Preferences of
    Series G Convertible Preferred Stock of the
    Company(previously filed as an exhibit to the Companys
    Registration Statement on Form S-3 filed on May 15,
    2000)                                                                                 
|        | 3.5   |                     |  | 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)                                                                            
|        | 4.1   |                     |  | Specimen Stock Certificate (previously filed as
    an exhibit to the Companys Annual Report on
    Form 10-KSB filed on July 15, 1997)                                                                                                                                                                    
|        | 4.2   |                     |  | Form of 13% Subordinated Convertible Debenture,
    due December 31, 2005 (previously filed as exhibit 4.1
    to the Companys Quarterly Report on Form 10-Q filed
    on February 14, 2001)                                                                                                               
|        | 4.3   |                     |  | Form of 13.125% Subordinated Convertible
    Debenture, due December 31, 2005 (previously filed as
    exhibit 4.5 to the Companys Annual Report on
    Form 10-K filed on July 15, 2002)                                                                                                                  
|        | 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)                                                                                                                                              
|        | 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)                                                                                                                                 
|        | 10.6  |                     |  | Amended and Restated Credit Agreement between the
    Company and Ocean Bank, dated September 5, 2001 (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)                                                                                                
|        | 10.8  |                     |  | Basic Lease Information Rider T-Rex Technology
    Center of the Americas @ Miami, dated October 16, 2000,
    between Technology Center of the Americas, LLC and NAP of the
    Americas, Inc. (previously filed as an exhibit to the
    Companys Current Report on Form 8-K filed on
    April 15, 2003)
|        | 10.9  |                     |  | Debt Satisfaction Agreement between the Company
    and CRG, LLC, dated November 11, 2002 (previously filed as
    an exhibit to the Companys Registration Statement on
    Form S-3/A filed on March 17, 2004)                                                                                            
|        | 10.10 |                     |  | Amended and Restated Debt Satisfaction Agreement
    between the Registrant and CRG, LLC, dated December 5, 2002
    (previously filed as an exhibit to the Companys
    Registration Statement on Form S-3/A filed on
    March 17, 2004)                                                                 
|        | 10.11 |                     |  | Agreement between Terremark Technology
    Contractors Inc., and Kinetics Systems, Inc., dated
    December 28, 2000 (previously filed as an exhibit to the
    Companys Current Report on Form 8-K filed on
    April 15, 2003)                                                                           
|        | 10.12 |                     |  | Debt Conversion Agreement between the Company,
    NAP of the Americas and Ocean Bank, dated April 30, 2003
    (previously filed as an exhibit to the Companys Annual
    Report on Form 10-K filed on June 30, 2003)                                                                                     

49



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##### Table of Contents



|        |       |                     |  |                                                                                                                                                                                                                                                                     
|------- | ----- | ------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                    
|Number  |       | Exhibit Description
|        |       |                    
|        | 10.13 |                     |  | Non-qualified Stock Option Agreement with Brian
    K. Goodkind to purchase 1,278,205 shares of the
    Companys common stock (previously filed as an exhibit to
    the Companys Quarterly Report on Form 10-Q filed on
    August 14, 2003)                     
|        | 10.14 |                     |  | Non-qualified Stock Option Agreement with Brian
    K. Goodkind to purchase 1,406,795 shares of the
    Companys common stock (previously filed as an exhibit to
    the Companys Quarterly Report on Form 10-Q filed on
    August 14, 2003)                     
|        | 10.15 |                     |  | First Amendment to the Non-qualified Stock Option
    Agreement with Brian K. Goodkind to purchase 200,000 shares
    of the Companys common stock (previously filed as an
    exhibit to the Companys Quarterly Report on Form 10-Q
    filed on August 14, 2003)
|        | 10.16 |                     |  | First Amendment to the Non-qualified Stock Option
    Agreement with Brian K. Goodkind to purchase 115,000 shares
    of the Companys common stock (previously filed as an
    exhibit to the Companys Quarterly Report on Form 10-Q
    filed on August 14, 2003)
|        | 10.17 |                     |  | 2000 Stock Option Plan (previously filed as an
    exhibit to the Companys Registration Statement on
    Form S-8 filed on August 19, 2002)                                                                                                                        
|        | 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 São 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 José A. Segrera
    dated September 8, 2001 (previously filed as an exhibit to
    the Companys Annual Report on Form 10-K filed
    June 30, 2003)                                                                                      
|        | 10.21 |                     |  | Employment Agreement with José E. Gonzalez
    dated November 2002 (previously filed as an exhibit to the
    Companys Annual Report on Form 10-K filed
    June 30, 2003)                                                                                         
|        | 10.22 |                     |  | Share Purchase Agreement between the Company and
    NAP de Las Americas  Madrid, S.A. dated July 13,
    2002 (previously filed as an exhibit to the Companys
    Annual Report on Form 10-K filed June 30, 2003)                                                
|        | 10.23 |                     |  | Employment Agreement with Jamie Dos Santos dated
    November 1, 2002*                                                                                                                                                                                              
|        | 10.24 |                     |  | Employment Agreement with Marvin Wheeler dated
    November 1, 2002*                                                                                                                                                                                                
|        | 21    |                     |  | Subsidiaries of the Company*                                                                                                                                                                                                                                        
|        | 31.1  |                     |  | Certification of Chief Executive Officer pursuant
    to Rule 13a-14(a) and 15d-14(a)*                                                                                                                                                                              
|        | 31.2  |                     |  | Certification of Chief Financial Officer pursuant
    to Rule 13a-14(a) and 15d-14(a)*                                                                                                                                                                              
|        | 32.1  |                     |  | Certification of Chief Executive Officer pursuant
    to 18 USC. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002*                                                                                                            
|        | 32.2  |                     |  | Certification of Chief Financial Officer pursuant
    to 18 USC. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002*                                                                                                            



---



|  |               
|- | --------------
|* | Filed herewith

(b) Reports on Form 8-K

Other than Current Reports on Form 8-K under
Item 12, which are not deemed to be filed for
purpose of the Securities Exchange Act of 1934, as amended, the
Company filed no Current Reports on Form 8-K during the
quarterly period ended March 31, 2004:

50



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##### Table of Contents



SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 14th day of June
2004.



| |                          
| | -------------------------
| | TERREMARK WORLDWIDE, INC.



| |     |                     
| | --- | --------------------
| | By: | /s/ MANUEL D. MEDINA

| |                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                         
| | Manuel D. Medina, Chairman of the Board, 
     President and Chief Executive Officer 
     (Principal Executive Officer)



| |     |                    
| | --- | -------------------
| | By: | /s/ JOSÉ A. SEGRERA

| |                                                             
| | ------------------------------------------------------------
| |                                                             
| | Chief Financial Officer 
     (Principal Accounting Officer)

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. MEDINAManuel D. Medina                   |  | Chairman of the Board, President
    and Chief Executive Officer
    (Principal Executive Officer) |  | June 14, 2004
|                                                      
|/s/ GUILLERMO AMOREGuillermo Amore                     |  | Director                                                                                           |  | June 14, 2004
|                                                      
|/s/ TIMOTHY ELWESTimothy Elwes                         |  | Director                                                                                           |  | June 14, 2004
|                                                      
|/s/ ANTONIO S. FERNANDEZAntonio S. Fernandez           |  | Director                                                                                           |  | June 14, 2004
|                                                      
|/s/ FERNANDO FERNANDEZ-TAPIASFernando Fernandez-Tapias |  | Director                                                                                           |  |              
|                                                      
|/s/ JOSÉ MARIA FIGUERES-OLSENJosé Maria Figueres-Olsen |  | Director                                                                                           |  | June 14, 2004
|                                                      
|/s/ HON. ARTHUR L. MONEYHon. Arthur L. Money           |  | Director                                                                                           |  | June 14, 2004
|                                                      
|/s/ MARVIN S. ROSENMarvin S. Rosen                     |  | Director                                                                                           |  | June 14, 2004
|                                                      
|/s/ MIGUEL J. ROSENFELDMiguel J. Rosenfeld             |  | Director                                                                                           |  | June 14, 2004
|                                                      
|/s/ RODOLFO A. RUIZRodolfo A. Ruiz                     |  | Director                                                                                           |  | June 14, 2004
|                                                      
|/s/ JOSEPH R. WRIGHT, JR.Joseph R. Wright, Jr.         |  | Director                                                                                           |  | June 14, 2004
|                                                      
|/s/ JOSÉ A. SEGRERAJosé A. Segrera                     |  | Chief Financial Officer
    (Principal Accounting Officer)                                         |  | June 14, 2004

51



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##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES

Consolidated Financial Statements

March 31, 2004




---



##### Table of Contents



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 sheets and the related consolidated statements of
operations, of changes in stockholders deficit and of cash
flows present fairly, in all material respects, the financial
position of Terremark Worldwide, Inc. and its subsidiaries at
March 31, 2004 and 2003, and the results of their
operations and their cash flows for each of the three years in
the period ended March 31, 2004 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

Fort Lauderdale, Florida 
 June 14, 2004


F-1



---



##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                    |                                             |           |              |             |   |   |              |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | --------- | ------------ | ----------- | - | - | ------------ | ----------- | -
|                                                                                                                                                                    |                                             |          
|                                                                                                                                                                    |                                             | March 31,
|                                                                                                                                                                    |                                             |          
|                                                                                                                                                                    |                                             | 2004      |              | 2003       
|                                                                                                                                                                    |                                             |           |              |            
|ASSETS                                                                                                                                                              |                                             |           |              |             |   |   |              |            
|Current assets:                                                                                                                                                     |                                             |           |              |             |   |   |              |            
|Cash and cash equivalents                                                                                                                                           |                                             | $         | 4,378,614    |             |   | $ | 1,408,190    |            
|Accounts receivable, net of allowance for
    doubtful accounts of $200,000 and $120,340                                                                            |                                             |           | 3,214,101    |             |   |   | 494,736      |            
|Note receivable                                                                                                                                                     |                                             |           | 2,285,000    |             |   |   |             |            
|Contracts receivable                                                                                                                                                |                                             |           | 363,043      |             |   |   | 29,204       |            
|Prepaid and other current assets ($499,009 and
    $471,000 due from related party)                                                                                 |                                             |           | 1,115,230    |             |   |   | 760,809      |            
|                                                                                                                                                                    |                                             |           |              |             |   |   |              |            
|                                                                                                                                                                    | Total current assets                        |           |              | 11,355,988  |   |   |              | 2,692,939   |  
|Investment in unconsolidated entities, net                                                                                                                          |                                             |           | 725,319      |             |   |   | 827,667      |            
|Restricted cash                                                                                                                                                     |                                             |           | 789,476      |             |   |   | 768,905      |            
|Property and equipment, net                                                                                                                                         |                                             |           | 53,897,716   |             |   |   | 54,482,964   |            
|Other assets                                                                                                                                                        |                                             |           | 664,334      |             |   |   | 829,168      |            
|Goodwill                                                                                                                                                            |                                             |           | 9,999,870    |             |   |   | 9,999,870    |            
|                                                                                                                                                                    |                                             |           |              |             |   |   |              |            
|                                                                                                                                                                    | TOTAL ASSETS                                |           | $            | 77,432,703  |   |   | $            | 69,601,513  |  
|                                                                                                                                                                    |                                             |           |              |             |   |   |              |            
|LIABILITIES AND STOCKHOLDERS
    DEFICIT                                                                                                                           |                                             |           |              |             |   |   |              |            
|Current liabilities:                                                                                                                                                |                                             |           |              |             |   |   |              |            
|Current portion of notes payable (includes
    $4,325,010 and $138,000 due to related parties)                                                                      |                                             | $         | 9,194,145    |             |   | $ | 1,464,963    |            
|Construction payables                                                                                                                                               |                                             |           | 1,363,554    |             |   |   | 22,012,162   |            
|Accounts payable and accrued expenses                                                                                                                               |                                             |           | 7,038,768    |             |   |   | 8,434,373    |            
|Current portion of capital lease obligations                                                                                                                        |                                             |           | 1,799,726    |             |   |   | 2,477,467    |            
|Interest payable                                                                                                                                                    |                                             |           | 1,952,978    |             |   |   | 4,492,805    |            
|Net liabilities of discontinued operations                                                                                                                          |                                             |           | 28,551       |             |   |   | 1,199,531    |            
|Convertible debt                                                                                                                                                    |                                             |           | 250,000      |             |   |   | 900,000      |            
|                                                                                                                                                                    |                                             |           |              |             |   |   |              |            
|                                                                                                                                                                    | Total current liabilities                   |           |              | 21,627,722  |   |   |              | 40,981,301  |  
|Notes payable, less current portion (includes
    $31,191,967 and $4,100,000 due to related parties)                                                                |                                             |           | 31,311,894   |             |   |   | 56,174,938   |            
|Convertible debt, with a face value of
    $37,800,000 and $14,005,000 (includes $4,150,000 and $3,450,000
    due to related parties)                              |                                             |           | 36,895,239   |             |   |   | 14,005,000   |            
|Deferred rent                                                                                                                                                       |                                             |           | 6,938,454    |             |   |   | 2,610,623    |            
|Capital lease obligations, less current portion                                                                                                                     |                                             |           | 105,886      |             |   |   | 762,470      |            
|Deferred revenue                                                                                                                                                    |                                             |           | 2,686,396    |             |   |   | 971,150      |            
|Series H redeemable convertible preferred
    stock: $.001 par value, 294 shares issued and outstanding, at
    liquidation value                                   |                                             |           | 586,718      |             |   |   | 556,729      |            
|                                                                                                                                                                    |                                             |           |              |             |   |   |              |            
|                                                                                                                                                                    | TOTAL LIABILITIES                           |           |              | 100,152,309 |   |   |              | 116,062,211 |  
|                                                                                                                                                                    |                                             |           |              |             |   |   |              |            
|Commitments and contingencies (Note 16)                                                                                                                             |                                             |           |             |             |   |   |             |            
|                                                                                                                                                                    |                                             |           |              |             |   |   |              |            
|Series G convertible preferred stock: $.001
    par value, 20 shares issued and outstanding (Liquidation value
    of approximately $2.8 million and $2.6 million.) |                                             |           | 1            |             |   |   | 1            |            
|Series I convertible preferred stock: $.001
    par value, 400 shares issued and outstanding (Liquidation value
    of approximately $10.0 million.)                |                                             |           | 1            |             |   |   |             |            
|Common stock: $.001 par value, 500,000,000 shares
    authorized; 311,227,482 and 256,276,864 shares issued and
    outstanding                                     |                                             |           | 311,227      |             |   |   | 256,277      |            
|Paid in capital                                                                                                                                                     |                                             |           | 213,596,501  |             |   |   | 169,204,208  |            
|Accumulated deficit                                                                                                                                                 |                                             |           | (236,814,717 | )           |   |   | (214,324,140 | )          
|Common stock warrants                                                                                                                                               |                                             |           | 3,642,006    |             |   |   | 1,857,581    |            
|Common stock options                                                                                                                                                |                                             |           | 1,545,375    |             |   |   | 1,545,375    |            
|Note receivable  related party
    (Note 9)                                                                                                                        |                                             |           | (5,000,000   | )           |   |   | (5,000,000   | )          
|                                                                                                                                                                    |                                             |           |              |             |   |   |              |            
|                                                                                                                                                                    | TOTAL STOCKHOLDERS DEFICIT                 |           |              | (22,719,606 | ) |   |              | (46,460,698 | )
|                                                                                                                                                                    |                                             |           |              |             |   |   |              |            
|                                                                                                                                                                    | TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT |           | $            | 77,432,703  |   |   | $            | 69,601,513  |  
|                                                                                                                                                                    |                                             |           |              |             |   |   |              |            

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

F-2



---



##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                 |                                                                                                                                              |                              |             |             |            |      |             |             |             |   |             |             |            |  
|------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------- | ----------- | ----------- | ---------- | ---- | ----------- | ----------- | ----------- | - | ----------- | ----------- | ---------- | -
|                                                 |                                                                                                                                              |                             
|                                                 |                                                                                                                                              | For The year ended March 31,
|                                                 |                                                                                                                                              |                             
|                                                 |                                                                                                                                              | 2004                         |             | 2003        |            | 2002
|                                                 |                                                                                                                                              |                              |             |             |            |     
|Revenues                                         |                                                                                                                                              |                              |             |             |            |      |             |             |             |   |             |            
|                                                 | Data center                                                                                                                                  |                              | $           | 17,034,377  |            |      | $           | 11,032,985  |             |   | $           | 3,215,897   |           
|                                                 | Development, commission and construction fees                                                                                                |                              |             | 41,081      |            |      |             | 197,413     |             |   |             | 3,218,330   |           
|                                                 | Management fees                                                                                                                              |                              |             | 197,827     |            |      |             | 179,505     |             |   |             | 1,183,570   |           
|                                                 | Construction contracts                                                                                                                       |                              |             | 940,454     |            |      |             | 3,283,800   |             |   |             | 8,254,687   |           
|                                                 |                                                                                                                                              |                              |             |             |            |      |             |             |             |   |             |            
|                                                 |                                                                                                                                              | Operating revenues           |             |             | 18,213,739 |      |             |             | 14,693,703  |   |             |             | 15,872,484 |  
|                                                 |                                                                                                                                              |                              |             |             |            |      |             |             |             |   |             |            
|Expenses                                         |                                                                                                                                              |                              |             |             |            |      |             |             |             |   |             |            
|                                                 | Data center operations, excluding depreciation
    (includes $5,308,272, $3,558,196 and $2,668,647 of rent expense
    with a related party) |                              |             | 16,413,021  |            |      |             | 11,234,833  |             |   |             | 11,230,513  |           
|                                                 | Start up costs-data centers                                                                                                                  |                              |             |            |            |      |             |            |             |   |             | 3,383,127   |           
|                                                 | Construction contract expenses, excluding
    depreciation                                                                                   |                              |             | 918,022     |            |      |             | 2,968,142   |             |   |             | 7,397,524   |           
|                                                 | General and administrative                                                                                                                   |                              |             | 13,336,400  |            |      |             | 12,507,121  |             |   |             | 15,561,042  |           
|                                                 | Sales and marketing                                                                                                                          |                              |             | 3,424,411   |            |      |             | 4,200,858   |             |   |             | 3,621,176   |           
|                                                 | Depreciation and amortization                                                                                                                |                              |             | 4,698,292   |            |      |             | 5,092,749   |             |   |             | 7,257,151   |           
|                                                 | Impairment of long-lived assets and goodwill                                                                                                 |                              |             |            |            |      |             | 4,020,300   |             |   |             | 18,973,670  |           
|                                                 |                                                                                                                                              |                              |             |             |            |      |             |             |             |   |             |            
|                                                 |                                                                                                                                              | Operating expenses           |             |             | 38,790,146 |      |             |             | 40,024,003  |   |             |             | 67,424,203 |  
|                                                 |                                                                                                                                              |                              |             |             |            |      |             |             |             |   |             |            
|                                                 | Loss from operations                                                                                                                         |                              |             | (20,576,407 | )          |      |             | (25,330,300 | )           |   |             | (51,551,719 | )         
|                                                 |                                                                                                                                              |                              |             |             |            |      |             |             |             |   |             |            
|Other income (expenses)                          |                                                                                                                                              |                              |             |             |            |      |             |             |             |   |             |            
|                                                 | Gain on debt restructuring                                                                                                                   |                              |             | 8,475,000   |            |      |             |            |             |   |             |            |           
|                                                 | Inducement on debt conversion                                                                                                                |                              |             |            |            |      |             | (4,871,245  | )           |   |             |            |           
|                                                 | Interest expense (includes $4,000,000, $3,300,000
    and $1,500,000 with a related party)                                                   |                              |             | (14,624,922 | )          |      |             | (11,007,683 | )           |   |             | (9,750,473  | )         
|                                                 | Gain on sale of real estate held for sale                                                                                                    |                              |             |            |            |      |             |            |             |   |             | 4,185,728   |           
|                                                 | Interest income                                                                                                                              |                              |             | 131,548     |            |      |             | 136,278     |             |   |             | 97,237      |           
|                                                 | Other                                                                                                                                        |                              |             | 4,104,204   |            |      |             | (154,355    | )           |   |             | (352,988    | )         
|                                                 |                                                                                                                                              |                              |             |             |            |      |             |             |             |   |             |            
|                                                 |                                                                                                                                              | Total other expenses         |             |             | (1,914,170 | )    |             |             | (15,897,005 | ) |             |             | (5,820,496 | )
|                                                 |                                                                                                                                              |                              |             |             |            |      |             |             |             |   |             |            
|                                                 | Loss before income taxes                                                                                                                     |                              |             | (22,490,577 | )          |      |             | (41,227,305 | )           |   |             | (57,372,215 | )         
|Income taxes                                     |                                                                                                                                              |                              |            |             |            |      |            |             |             |   |            |            
|                                                 |                                                                                                                                              |                              |             |             |            |      |             |             |             |   |             |            
|Net loss                                         |                                                                                                                                              |                              | (22,490,577 | )           |            |      | (41,227,305 | )           |             |   | (57,372,215 | )          
|Non-cash preferred dividend                      |                                                                                                                                              |                              | (1,158,244  | )           |            |      | (160,000    | )           |             |   | (160,000    | )          
|                                                 |                                                                                                                                              |                              |             |             |            |      |             |             |             |   |             |            
|Net loss attributable to common shareholders     |                                                                                                                                              | $                            | (23,648,821 | )           |            | $    | (41,387,305 | )           |             | $ | (57,532,215 | )          
|                                                 |                                                                                                                                              |                              |             |             |            |      |             |             |             |   |             |            
|Basic and diluted net loss per common
    share: |                                                                                                                                              | $                            | (0.08       | )           |            | $    | (0.18       | )           |             | $ | (0.29       | )          
|                                                 |                                                                                                                                              |                              |             |             |            |      |             |             |             |   |             |            
|                                                 | Weighted average common shares outstanding                                                                                                   |                              |             | 305,028,194 |            |      |             | 235,209,310 |             |   |             | 199,243,146 |           
|                                                 |                                                                                                                                              |                              |             |             |            |      |             |             |             |   |             |            

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

F-3



---



##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS DEFICIT

|                                                                        |  |                      |   |                 |  |        |   |            |  |         |             |               |  |          |         |         |  |          |             |                 |  |          |          |   |  |   |            |   |  |   |           |   |  |   |            |   |  |   |            |   |  |   |              |  
|----------------------------------------------------------------------- |  | -------------------- | - | --------------- |  | ------ | - | ---------- |  | ------- | ----------- | ------------- |  | -------- | ------- | ------- |  | -------- | ----------- | --------------- |  | -------- | -------- | - |  | - | ---------- | - |  | - | --------- | - |  | - | ---------- | - |  | - | ---------- | - |  | - | ------------ | -
|                                                                        |  |                     
|                                                                        |  | Stockholders Equity
|                                                                        |  |                     
|                                                                        |  |                      |   |                 |  |       
|                                                                        |  |                      |   | Common Stock    |  |       
|                                                                        |  |                      |   | Par Value $.001 |  |       
|                                                                        |  | Preferred            |   | Preferred       |  |        |   | Additional |  |         |             | Common        |  | Common   |         |        
|                                                                        |  | Stock                |   | Stock           |  | Issued |   |            |  | Paid-in |             | Stock         |  | Stock    |         | Stock   |  | Treasury |             | Note Receivable |  | Retained
|                                                                        |  | Series G             |   | Series I        |  | Shares |   | Amount     |  | Capital |             | Subscriptions |  | Warrants |         | Options |  | Stock    |             | Related Party   |  | Deficit 
|                                                                        |  |                      |   |                 |  |        |   |            |  |         |             |               |  |          |         |         |  |          |             |                 |  |         
|Balance at March 31, 2001                                               |  | $                    | 1 |                 |  | $      |  |            |  |         | 200,507,179 |               |  | $        | 200,507 |         |  | $        | 125,339,544 |                 |  | $        |         |   |  | $ | 2,059,398  |   |  | $ | 1,716,138 |   |  | $ | (2,428,125 | ) |  | $ |           |   |  | $ | (115,724,620 | )
|Exercise of stock options                                               |  |                      |  |                 |  |        |  |            |  |         | 115,000     |               |  |          | 115     |         |  |          | 40,135      |                 |  |          |         |   |  |   |           |   |  |   |          |   |  |   |           |   |  |   |           |   |  |   |             |  
|Forfeiture of stock options                                             |  |                      |  |                 |  |        |  |            |  |         |            |               |  |          |        |         |  |          |            |                 |  |          |         |   |  |   |           |   |  |   | (169,337  | ) |  |   |           |   |  |   |           |   |  |   |             |  
|Warrants issued                                                         |  |                      |  |                 |  |        |  |            |  |         |            |               |  |          |        |         |  |          |            |                 |  |          |         |   |  |   | 849,015    |   |  |   |          |   |  |   |           |   |  |   |           |   |  |   |             |  
|Exercise of warrants                                                    |  |                      |  |                 |  |        |  |            |  |         | 100,000     |               |  |          | 100     |         |  |          | 29,900      |                 |  |          |         |   |  |   | (29,000    | ) |  |   |          |   |  |   |           |   |  |   |           |   |  |   |             |  
|Stock options issued                                                    |  |                      |  |                 |  |        |  |            |  |         |            |               |  |          |        |         |  |          |            |                 |  |          |         |   |  |   |           |   |  |   | 20,000    |   |  |   |           |   |  |   |           |   |  |   |             |  
|Conversion of debt                                                      |  |                      |  |                 |  |        |  |            |  |         | 160,071     |               |  |          | 160     |         |  |          | 242,540     |                 |  |          |         |   |  |   |           |   |  |   |          |   |  |   |           |   |  |   |           |   |  |   |             |  
|Common stock subscriptions                                              |  |                      |  |                 |  |        |  |            |  |         |            |               |  |          |        |         |  |          |            |                 |  |          | 950,000  |   |  |   |           |   |  |   |          |   |  |   |           |   |  |   |           |   |  |   |              |  
|Note receivable-related party                                           |  |                      |  |                 |  |        |  |            |  |         |            |               |  |          |        |         |  |          |            |                 |  |          |         |   |  |   |           |   |  |   |          |   |  |   |           |   |  |   | (5,000,000 | ) |  |   |             |  
|Net loss                                                                |  |                      |  |                 |  |        |  |            |  |         |            |               |  |          |        |         |  |          |            |                 |  |          |         |   |  |   |           |   |  |   |          |   |  |   |           |   |  |   |           |   |  |   | (57,372,215  | )
|                                                                        |  |                      |   |                 |  |        |   |            |  |         |             |               |  |          |         |         |  |          |             |                 |  |          |          |   |  |   |            |   |  |   |           |   |  |   |            |   |  |   |            |   |  |   |              |  
|Balance at March 31, 2002                                               |  |                      | 1 |                 |  |        |  |            |  |         | 200,882,250 |               |  |          | 200,882 |         |  |          | 125,652,119 |                 |  |          | 950,000  |   |  |   | 2,879,413  |   |  |   | 1,566,801 |   |  |   | (2,428,125 | ) |  |   | (5,000,000 | ) |  |   | (173,096,835 | )
|Sale of common stock                                                    |  |                      |  |                 |  |        |  |            |  |         | 33,148,824  |               |  |          | 33,149  |         |  |          | 21,395,161  |                 |  |          | (950,000 | ) |  |   |           |   |  |   |          |   |  |   |           |   |  |   |           |   |  |   |             |  
|Retirement of treasury shares                                           |  |                      |  |                 |  |        |  |            |  |         | (1,400,000  | )             |  |          | (1,400  | )       |  |          | (2,426,725  | )               |  |          |         |   |  |   |           |   |  |   |          |   |  |   | 2,428,125  |   |  |   |           |   |  |   |             |  
|Warrants issued                                                         |  |                      |  |                 |  |        |  |            |  |         |            |               |  |          |        |         |  |          |            |                 |  |          |         |   |  |   | 1,221,979  |   |  |   |          |   |  |   |           |   |  |   |           |   |  |   |             |  
|Exercise of warrants                                                    |  |                      |  |                 |  |        |  |            |  |         | 818,000     |               |  |          | 818     |         |  |          | 372,100     |                 |  |          |         |   |  |   | (364,738   | ) |  |   |          |   |  |   |           |   |  |   |           |   |  |   |             |  
|Conversion of debt                                                      |  |                      |  |                 |  |        |  |            |  |         | 22,827,790  |               |  |          | 22,828  |         |  |          | 22,311,054  |                 |  |          |         |   |  |   |           |   |  |   |          |   |  |   |           |   |  |   |           |   |  |   |             |  
|Warrants expired                                                        |  |                      |  |                 |  |        |  |            |  |         |            |               |  |          |        |         |  |          | 1,879,073   |                 |  |          |         |   |  |   | (1,879,073 | ) |  |   |          |   |  |   |           |   |  |   |           |   |  |   |             |  
|Forfeiture of stock options                                             |  |                      |  |                 |  |        |  |            |  |         |            |               |  |          |        |         |  |          | 21,426      |                 |  |          |         |   |  |   |           |   |  |   | (21,426   | ) |  |   |           |   |  |   |           |   |  |   |             |  
|Net loss                                                                |  |                      |  |                 |  |        |  |            |  |         |            |               |  |          |        |         |  |          |            |                 |  |          |         |   |  |   |           |   |  |   |          |   |  |   |           |   |  |   |           |   |  |   | (41,227,305  | )
|                                                                        |  |                      |   |                 |  |        |   |            |  |         |             |               |  |          |         |         |  |          |             |                 |  |          |          |   |  |   |            |   |  |   |           |   |  |   |            |   |  |   |            |   |  |   |              |  
|Balance at March 31, 2003                                               |  |                      | 1 |                 |  |        |  |            |  |         | 256,276,864 |               |  |          | 256,277 |         |  |          | 169,204,208 |                 |  |          |         |   |  |   | 1,857,581  |   |  |   | 1,545,375 |   |  |   |           |   |  |   | (5,000,000 | ) |  |   | (214,324,140 | )
|Conversion of debt                                                      |  |                      |  |                 |  |        |  |            |  |         | 51,211,834  |               |  |          | 51,212  |         |  |          | 24,257,664  |                 |  |          |         |   |  |   |           |   |  |   |          |   |  |   |           |   |  |   |           |   |  |   |             |  
|Exercise of stock options                                               |  |                      |  |                 |  |        |  |            |  |         | 77,268      |               |  |          | 77      |         |  |          | 38,328      |                 |  |          |         |   |  |   |           |   |  |   |          |   |  |   |           |   |  |   |           |   |  |   |             |  
|Warrants issued                                                         |  |                      |  |                 |  |        |  |            |  |         |            |               |  |          |        |         |  |          | (309,998    | )               |  |          |         |   |  |   | 644,597    |   |  |   |          |   |  |   |           |   |  |   |           |   |  |   |             |  
|Exercise of warrants                                                    |  |                      |  |                 |  |        |  |            |  |         | 9,500       |               |  |          | 9       |         |  |          | 8,521       |                 |  |          |         |   |  |   | (3,971     | ) |  |   |          |   |  |   |           |   |  |   |           |   |  |   |             |  
|Warrants expired                                                        |  |                      |  |                 |  |        |  |            |  |         |            |               |  |          |        |         |  |          | 528,449     |                 |  |          |         |   |  |   | (528,449   | ) |  |   |          |   |  |   |           |   |  |   |           |   |  |   |             |  
|Beneficial conversion feature on issuance of
    convertible debentures |  |                      |  |                 |  |        |  |            |  |         |            |               |  |          |        |         |  |          | 9,500,000   |                 |  |          |         |   |  |   |           |   |  |   |          |   |  |   |           |   |  |   |           |   |  |   |             |  
|Stock options issued                                                    |  |                      |  |                 |  |        |  |            |  |         |            |               |  |          |        |         |  |          | 2,185,463   |                 |  |          |         |   |  |   |           |   |  |   |          |   |  |   |           |   |  |   |           |   |  |   |             |  
|Series I Preferred stock issued                                         |  |                      |  |                 |  |        | 1 |            |  |         |            |               |  |          |        |         |  |          | 8,187,518   |                 |  |          |         |   |  |   | 1,672,248  |   |  |   |          |   |  |   |           |   |  |   |           |   |  |   |             |  
|Common stock issued                                                     |  |                      |  |                 |  |        |  |            |  |         | 3,652,016   |               |  |          | 3,652   |         |  |          | (3,652      | )               |  |          |         |   |  |   |           |   |  |   |          |   |  |   |           |   |  |   |           |   |  |   |             |  
|Net loss                                                                |  |                      |  |                 |  |        |  |            |  |         |            |               |  |          |        |         |  |          |            |                 |  |          |         |   |  |   |           |   |  |   |          |   |  |   |           |   |  |   |           |   |  |   | (22,490,577  | )
|                                                                        |  |                      |   |                 |  |        |   |            |  |         |             |               |  |          |         |         |  |          |             |                 |  |          |          |   |  |   |            |   |  |   |           |   |  |   |            |   |  |   |            |   |  |   |              |  
|Balance at March 31, 2004                                               |  | $                    | 1 |                 |  | $      | 1 |            |  |         | 311,227,482 |               |  | $        | 311,227 |         |  | $        | 213,596,501 |                 |  | $        |         |   |  | $ | 3,642,006  |   |  | $ | 1,545,375 |   |  | $ |           |   |  | $ | (5,000,000 | ) |  | $ | (236,814,717 | )
|                                                                        |  |                      |   |                 |  |        |   |            |  |         |             |               |  |          |         |         |  |          |             |                 |  |          |          |   |  |   |            |   |  |   |           |   |  |   |            |   |  |   |            |   |  |   |              |  

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

F-4



---



##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

MARCH 31, 2004


|                                                 |                                                                                |                                                                                         |                                                    |                                           |            |            |             |             |           |           |             |             |            |            |             |  
|------------------------------------------------ | ------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------- | -------------------------------------------------- | ----------------------------------------- | ---------- | ---------- | ----------- | ----------- | --------- | --------- | ----------- | ----------- | ---------- | ---------- | ----------- | -
|                                                 |                                                                                |                                                                                        
|                                                 |                                                                                | For the year ended March 31,                                                           
|                                                 |                                                                                |                                                                                        
|                                                 |                                                                                | 2004                                                                                    |                                                    | 2003                                      |            | 2002      
|                                                 |                                                                                |                                                                                         |                                                    |                                           |            |           
|Cash flows from operating activities:            |                                                                                |                                                                                         |                                                    |                                           |            |            |             |             |           |           |             |            
|                                                 | Net loss                                                                       |                                                                                         | $                                                  | (22,490,577                               | )          |            | $           | (41,227,305 | )         |           | $           | (57,372,215 | )         
|                                                 | Adjustments to reconcile net loss to net cash
    used in operating activities |                                                                                         |                                                    |                                           |            |            |             |             |           |           |             |             |           
|                                                 |                                                                                | Depreciation and amortization of long-lived assets                                      |                                                    |                                           | 4,698,292  |            |             |             | 5,092,749 |           |             |             | 7,257,151  |           
|                                                 |                                                                                | Amortization of beneficial conversion feature on
    issuance of convertible debentures |                                                    |                                           | 8,595,239  |            |             |             |          |           |             |             |           |           
|                                                 |                                                                                | Gain on sales of real estate held for sale                                              |                                                    |                                           |           |            |             |             |          |           |             |             | (4,185,728 | )         
|                                                 |                                                                                | Loss on sale of property and equipment                                                  |                                                    |                                           |           |            |             |             |          |           |             |             | 373,369    |           
|                                                 |                                                                                | Amortization of loan costs                                                              |                                                    |                                           | 130,483    |            |             |             | 908,321   |           |             |             | 1,097,922  |           
|                                                 |                                                                                | Provision for bad debt                                                                  |                                                    |                                           | 167,135    |            |             |             | 197,774   |           |             |             | 234,767    |           
|                                                 |                                                                                | Equity issued for services                                                              |                                                    |                                           |           |            |             |             | 313,968   |           |             |             |           |           
|                                                 |                                                                                | Impairment of long-lived assets                                                         |                                                    |                                           |           |            |             |             | 4,020,300 |           |             |             | 18,973,670 |           
|                                                 |                                                                                | Stock-based compensation                                                                |                                                    |                                           | 2,185,463  |            |             |             |          |           |             |             |           |           
|                                                 |                                                                                | Inducement on debt conversion expense                                                   |                                                    |                                           |           |            |             |             | 4,871,245 |           |             |             |           |           
|                                                 |                                                                                | Gain on debt restructuring                                                              |                                                    |                                           | (8,475,000 | )          |             |             |          |           |             |             |           |           
|                                                 |                                                                                | Other, net                                                                              |                                                    |                                           | 74,034     |            |             |             | 312,252   |           |             |             | (44,167    | )         
|                                                 |                                                                                | (Increase) decrease in:                                                                 |                                                    |                                           |            |            |             |             |           |           |             |             |            |           
|                                                 |                                                                                |                                                                                         | Accounts receivable                                |                                           |            | (2,886,500 | )           |             |           | 929,468   |             |             |            | 1,014,374  |            
|                                                 |                                                                                |                                                                                         | Contracts receivable                               |                                           |            | (333,839   | )           |             |           | 1,333,632 |             |             |            | 3,275,080  |            
|                                                 |                                                                                |                                                                                         | Other assets                                       |                                           |            | 279,530    |             |             |           | (123,369  | )           |             |            | (285,764   | )          
|                                                 |                                                                                | Increase (decrease) in:                                                                 |                                                    |                                           |            |            |             |             |           |           |             |             |            |           
|                                                 |                                                                                |                                                                                         | Accounts payable and accrued expenses              |                                           |            | (1,166,016 | )           |             |           | 649,006   |             |             |            | (9,214,398 | )          
|                                                 |                                                                                |                                                                                         | Interest payable                                   |                                           |            | (1,526,664 | )           |             |           | 2,947,252 |             |             |            | 2,024,589  |            
|                                                 |                                                                                |                                                                                         | Deferred revenue                                   |                                           |            | 1,715,246  |             |             |           | 155,324   |             |             |            | 531,133    |            
|                                                 |                                                                                |                                                                                         | Net assets/ liabilities of discontinued operations |                                           |            | (1,170,980 | )           |             |           | 175,521   |             |             |            | (1,306,837 | )          
|                                                 |                                                                                |                                                                                         | Deferred rent                                      |                                           |            | 4,327,831  |             |             |           | 1,135,448 |             |             |            | 1,908,575  |            
|                                                 |                                                                                |                                                                                         |                                                    |                                           |            |            |             |             |           |           |             |            
|                                                 |                                                                                |                                                                                         |                                                    | Net cash used in operating activities     |            |            | (15,876,323 | )           |           |           | (18,308,414 | )           |            |            | (35,718,479 | )
|                                                 |                                                                                |                                                                                         |                                                    |                                           |            |            |             |             |           |           |             |            
|Cash flows from investing activities:            |                                                                                |                                                                                         |                                                    |                                           |            |            |             |             |           |           |             |            
|                                                 | Restricted cash                                                                |                                                                                         |                                                    | (20,571                                   | )          |            |             | (11,332     | )         |           |             | (725,534    | )         
|                                                 | Purchase of property and equipment                                             |                                                                                         |                                                    | (4,054,741                                | )          |            |             | (994,892    | )         |           |             | (45,785,047 | )         
|                                                 | Proceeds from sale of real estate held for sale                                |                                                                                         |                                                    |                                          |            |            |             |            |           |           |             | 17,046,385  |           
|                                                 | Proceeds from sale of property and equipment                                   |                                                                                         |                                                    |                                          |            |            |             |            |           |           |             | 30,000      |           
|                                                 | Investment in unconsolidated entities                                          |                                                                                         |                                                    |                                          |            |            |             | (337,812    | )         |           |             |            |           
|                                                 |                                                                                |                                                                                         |                                                    |                                           |            |            |             |             |           |           |             |            
|                                                 |                                                                                |                                                                                         |                                                    | Net cash used in investing activities     |            |            | (4,075,312  | )           |           |           | (1,344,036  | )           |            |            | (29,434,196 | )
|                                                 |                                                                                |                                                                                         |                                                    |                                           |            |            |             |             |           |           |             |            
|Cash flows from financing activities:            |                                                                                |                                                                                         |                                                    |                                           |            |            |             |             |           |           |             |            
|                                                 | Borrowings (payments) of construction payables                                 |                                                                                         |                                                    | 1,215,505                                 |            |            |             | (2,948,554  | )         |           |             | 9,290,277   |           
|                                                 | New borrowings                                                                 |                                                                                         |                                                    | 750,000                                   |            |            |             | 10,032,220  |           |           |             | 66,750,175  |           
|                                                 | Payments on loans                                                              |                                                                                         |                                                    | (2,996,517                                | )          |            |             | (2,295,138  | )         |           |             | (26,550,718 | )         
|                                                 | Issuance of convertible debt                                                   |                                                                                         |                                                    | 19,550,000                                |            |            |             |            |           |           |             | 15,042,318  |           
|                                                 | Payments on convertible debt                                                   |                                                                                         |                                                    | (1,605,000                                | )          |            |             |            |           |           |             |            |           
|                                                 | Note receivable-related party                                                  |                                                                                         |                                                    |                                          |            |            |             |            |           |           |             | (5,000,000  | )         
|                                                 | Payments under capital lease obligations                                       |                                                                                         |                                                    | (1,334,325                                | )          |            |             | (975,433    | )         |           |             | (1,162,236  | )         
|                                                 | Sale of preferred stock                                                        |                                                                                         |                                                    | 7,309,765                                 |            |            |             |            |           |           |             | 500,000     |           
|                                                 | Cash received for common stock subscriptions                                   |                                                                                         |                                                    |                                          |            |            |             |            |           |           |             | 950,000     |           
|                                                 | Exercise of stock options and warrants                                         |                                                                                         |                                                    | 32,631                                    |            |            |             | 9,180       |           |           |             | 41,250      |           
|                                                 | Sale of common stock and warrants                                              |                                                                                         |                                                    |                                          |            |            |             | 16,955,287  |           |           |             |            |           
|                                                 |                                                                                |                                                                                         |                                                    |                                           |            |            |             |             |           |           |             |            
|                                                 |                                                                                |                                                                                         |                                                    | Net cash provided by financing activities |            |            | 22,922,059  |             |           |           | 20,777,562  |             |            |            | 59,861,066  |  
|                                                 |                                                                                |                                                                                         |                                                    |                                           |            |            |             |             |           |           |             |            
|                                                 |                                                                                |                                                                                         |                                                    | Net increase (decrease) in cash           |            |            | 2,970,424   |             |           |           | 1,125,112   |             |            |            | (5,291,609  | )
|Cash and cash equivalents at beginning of period |                                                                                |                                                                                         | 1,408,190                                          |                                           |            |            | 283,078     |             |           |           | 5,574,687   |            
|                                                 |                                                                                |                                                                                         |                                                    |                                           |            |            |             |             |           |           |             |            
|Cash and cash equivalents at end of period       |                                                                                | $                                                                                       | 4,378,614                                          |                                           |            | $          | 1,408,190   |             |           | $         | 283,078     |            
|                                                 |                                                                                |                                                                                         |                                                    |                                           |            |            |             |             |           |           |             |            

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

F-5



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##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

MARCH 31, 2004


1. BUSINESS AND ORGANIZATION

Terremark Worldwide, Inc. (together with its
subsidiaries, the Company) operates facilities at
strategic locations in Florida, California, and Sao Paulo from
which the Company assists users of the Internet and large
communications networks in communicating with other users and
networks. The Companys primary facility is the NAP of the
Americas, a carrier-neutral Tier-1 network access point (the
NAP) in Miami, Florida. The NAP provides exchange
point, colocation and managed services to carriers, Internet
service providers, network service providers, government
entities, multinational enterprises and other end users. The
Companys strategy is to leverage its concentration of
connectivity and carrier-neutral status to sell services to
customers within and outside of the Companys TerreNAP Data
Centers.

Prior to April 2000, the Company was engaged in
the development, sales, leasing, management and financing of
retail, high-rise office buildings, mixed-use projects,
condominiums, hotels and government-assisted housing. The
Company was also involved in a number of ancillary businesses
that complemented its development operations. Specifically, the
Company engaged in offering financial services, property
management, construction management, condominium hotel
management, residential and commercial leasing brokerage, and
advisory services. By March 31, 2002, the Company had
exited non-core real estate activities, real estate development,
property management, financing and the ancillary businesses that
complimented these real-estate development operations. The
Companys remaining real estate activities include
technology construction work and management of the property
where the NAP of the Americas is located.

2. LIQUIDITY AND RECENT
DEVELOPMENTS

The Company privately placed $75 million in
aggregate principal amount of 9% Senior Convertible Notes due
June 15, 2009 (the Senior Notes), to qualified
institutional buyers. The Company has also granted the initial
purchasers of the Senior Notes a 30-day option to purchase up to
an additional $11.25 million aggregate principal amount of
the Senior Notes. The Senior Notes will bear interest at a rate
of 9% per annum, payable semi-annually, beginning
December 15, 2004 and will be convertible at the option of
the holders, at $1.25 per share. The Company will utilize the
net proceeds from this offering to pay all of its outstanding
debt, for possible acquisitions and for general corporate
purposes, including working capital and capital expenditures.

The Senior Notes will rank senior in priority
with all existing and future unsecured and unsubordinated
indebtedness and senior in right of payment to all of existing
and future subordinated indebtedness, and rank junior to any
future secured indebtedness. If the is a change in control, 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. If the Company issue a cash
dividend on its common stock, it 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 notes for cash
at any time on or after June 145, 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
ate we mail the redemption notice. If we redeem 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.

On May 17, 2004, the Company provided
certain debenture holders with notice of its intent to redeem
the $25.0 million 10% convertible debentures and the
$2.8 million 13.125% convertible debentures, effective
May 31, 2004. As of May 31, 2004, all of the holders
of the 10% convertible debentures and $2.5 million in

F-6



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##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

principal of the 13.125% convertible debentures
opted to convert their debentures into an aggregate of
54,726,427 shares of the Companys common stock. The
debt conversion has effectively reduced annual cash interest
payments by approximately $2.9 million.

In May 2004, the Company issued three senior
secured promissory notes in favor of Veritas High Yield
Arbitrage I Fund, LLC, Veritas High Yield Arbitrage II
Fund, LLC, and Veritas High Yield Arbitrage Fund, (Bermuda) Ltd.
(collectively the Lenders) for the aggregate amount
of $5.2 million. The notes accrue interest at 12% per
annum, are paid monthly based on original face amount, and
mature on October 29, 2004, with prepayment permitted
without penalty after the first month.

Historically, the Company has financed its
operations and capital requirements primarily through the credit
facility with Ocean Bank, issuance of unsecured notes, issuance
of convertible debentures, private sale of common and preferred
stock and vendor financing, including construction payables and
capital lease obligations. As of March 31, 2003, total
indebtedness was approximately $116.1 million. As of
March 31, 2004, this amount was reduced to $82.1, including
the conversion to equity of $15.0 million of the Ocean Bank
debt and $22.6 million of certain construction payables,
including accrued interest.

From the time of the merger through
March 31, 2004, the Company has incurred net operating
losses of approximately $222.5 million. The Companys
cash flows from operations for the years ended March 31,
2004 and 2003 were negative and the working capital deficit was
approximately $10.2 million and $38.3 million as of
March 31, 2004 and 2003, respectively.

Based on customer contracts signed as of
June 14, 2004, expected expansions of customers under
contract and anticipated future contracts from potential
customers in the sales pipeline, the Company projects that its
cash flow from operations will be positive by the end of the
fiscal year ending March 31, 2005. The Companys
projected revenues and cash flows, depend on several factors,
some of which are beyond the Companys control, including
the rate at which the Company provides services and these
services are accepted 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
the Company, the reliability and cost-effectiveness of the
Companys services and the Companys ability to market
its services. Although the real estate activities had a net
operating loss of approximately $338,000 for the year ended
March 31, 2004, the Company anticipates that these
activities will generate enough revenues to cover operating
expenses. If revenues for real estate activities are below
amounts anticipated, cash needs are not expected to exceed
$200,000 for the next twelve months. Accordingly, the Company
believes that its cash resources are sufficient to meet working
capital, debt service and corporate overhead requirements
associated with the Companys operations until at least
March 31, 2005.

3. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

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

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

Use of estimates

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

F-7



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##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Reclassifications

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

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.

Investment in unconsolidated
entities

For investments in less than majority-owned
entities where the Company does not exercise significant
influence, the Company uses the cost method of accounting. For
investments in less than majority-owned entities where the
Company exercises significant influence, the Company uses the
equity method of accounting.

Restricted cash

Restricted cash represents cash deposits with a
financial institution collateralizing a $750,000 letter of
credit issued to the lessor of the Companys colocation
facility in Santa Clara, California.

Property and equipment

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

|                                 |  |  |               | 
|-------------------------------- |  |  | ------------- | 
|Leasehold 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.

Prepaid and other assets

Other assets consist of loan costs, prepaid
expenses and other. Loan costs, principally loan origination and
related fees, are deferred and amortized as interest expense
over the life of the respective loan using the straight-line
method, which approximates the effective interest method.

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

Goodwill represents the unamortized balance of
the excess purchase price over the fair value of identifiable
net assets acquired in conjunction with the acquisition of
Telecom Routing Exchange Developers, Inc., a corporation holding
rights to develop and manage facilities catering to the
telecommunications industry.

As of April 1, 2002, the Company adopted
Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets
(SFAS 142). SFAS 142 addresses financial
accounting and reporting for acquired goodwill and other
intangible assets. Under SFAS 142, goodwill and intangible
assets that have indefinite lives are not amortized but rather
are tested at least annually for impairment or whenever

F-8



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##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

Prior to the adoption of SFAS 142,
intangible assets were generally amortized on the straight-line
method over five years. In accordance with SFAS 142, the
Company ceased amortization of its intangible assets with
indefinite lives and completed an initial impairment test of
intangible assets as of April 1, 2002. Management
determined in the initial impairment test that these assets were
not impaired based on their fair values. Fair value was
estimated using the expected present value of future cash flows
and the assumed market capitalization at the reporting unit
level.

As of April 1, 2002, the Company accounts
for impairment of long-lived assets in accordance with SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. This standard requires that long-lived
assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. 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. If the carrying amount of the asset
exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the
asset exceeds the fair value of the asset. Prior to adoption of
SFAS No. 144, the Company accounted for long-lived assets
in accordance with SFAS No. 121, Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of.

During the three months ended March 31,
2004, the Company performed its annual test for impairment. The
Company completed its evaluation and concluded that there were
no impairments.

Rent expense

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

Fair value of financial instruments

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

The Companys short-term financial
instruments, including cash and cash equivalents, accounts
receivable, prepaid expenses and other current assets, accounts
payable and accrued expenses 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
and convertible debentures, based on management estimates
equaled their book value due to obligations or borrowings with
similar interest rates, maturities and extent of
collateralization. The fair value of the Companys
redeemable preferred

F-9



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##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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, 2004 |            | March 31, 2003
|                                                              |  |                |            |               
|                                                              |  | Book value     |            | Fair value     |  | Book value |            | Fair value
|                                                              |  |                |            |                |  |            |            |           
|Notes payable, including current portion                      |  | $              | 40,506,039 |                |  | $          | 30,978,196 |            |  | $ | 57,639,901 |  |  | $ | 52,014,901 | 
|Construction payables, including accrued interest
    in 2003 |  |                | 1,363,554  |                |  |            | 1,363,554  |            |  |   | 23,009,818 |  |  |   | 13,537,162 | 

As of March 31, 2004, fair value of the
Companys notes payable was based on discounted cash flows
using a discount rate of 10%. As of March 31, 2003, fair
value of the Companys notes payable was based on the
Companys stock price as of the April 30, 2003 partial
settlement and other reliable information.

As of March 31, 2004, fair value of
construction payables was estimated to equal their carrying
value due to their short-term nature. As of March 31, 2003,
fair value of construction payables, including accrued interest
was determined to be $13,537,162 based on the April 30,
2003 settlement.

Stock warrants

The Company uses the fair value method to value
warrants granted to non-employees. Some warrants are vested over
time and some are vested upon issuance. The Company determined
the fair value for non-employee warrants using the Black-Scholes
option-pricing model with the same assumption used for employee
grants, except for expected life which was assumed to be between
1 and 7 years. When stock warrants are granted in
connection with the issuance of debt, the fair value of stock
warrants is amortized to interest expense using the effective
interest rate method, over the life of the debt. When stock
warrants are granted in connection with the issuance of
preferred stock, the fair value of the stock warrants is
recognized as a non-cash preferred dividend in determining net
loss per share to common stockholders.

Revenue and profit recognition and allowance
for bad debts

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

Data center revenues consist of monthly recurring
fees for colocation and exchange point services and
non-recurring installation and managed services fees. Revenues
from colocation and exchange point services are recognized
ratably over the period of usage. Installation fees are deferred
and recognized ratably over the term of the related contract.
Managed services fees are recognized in the period in which the
services are provided.

Revenues from development, commission, management
fees and construction fees are recognized in the period in which
the services are provided.

Revenues from construction contracts are
recognized on the percentage-of-completion method, measured by
the percentage of costs incurred to date to total estimated
costs for each contract. This method is used because management
considers cost incurred to be the best measure of progress on
these contracts. Billings in

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TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

excess of costs and estimated earnings on
uncompleted contracts are classified as other liabilities and
represent billings in excess of revenues recognized.
Construction contract expenses costs include all direct material
and labor costs and indirect costs related to contract
performance such as indirect labor, supplies, tools, repairs,
bad debt and depreciation. Provisions for estimated losses on
uncompleted contracts are made in the period in which losses are
determined. Changes in job performance, job conditions and
estimated profitability, including those arising from contract
penalty provisions and final contract settlements may result in
revisions to costs and income and are recognized in the period
in which the revisions can be reasonably estimated. Accordingly,
it is possible the current estimates relating to completion cost
and profitability of its uncompleted contracts will vary from
actual results.

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

Income taxes

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

Significant concentrations

Two customers accounted for approximately 14% and
10% of data center revenues for the year ended March 31,
2004. Two customers accounted for approximately 14% and 10% of
data center revenues for the year ended March 31, 2003.

Stock-Based Compensation

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

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##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company has adopted the disclosure
requirements of SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and
Disclosure  An Amendment of SFAS No. 123.
The following table presents what the net loss and net loss per
share would have been had the Company adopted SFAS No. 123:

|                                                             |                                                                       |                                       |             |             |   |      |             |             |   |   |             |             |  
|------------------------------------------------------------ | --------------------------------------------------------------------- | ------------------------------------- | ----------- | ----------- | - | ---- | ----------- | ----------- | - | - | ----------- | ----------- | -
|                                                             |                                                                       |                                      
|                                                             |                                                                       | For the Twelve Months Ended March 31,
|                                                             |                                                                       |                                      
|                                                             |                                                                       | 2004                                  |             | 2003        |   | 2002
|                                                             |                                                                       |                                       |             |             |   |     
|Net loss attributable to common shareholders as
    reported |                                                                       | $                                     | (23,648,821 | )           |   | $    | (41,387,305 | )           |   | $ | (57,532,215 | )          
|                                                             | Stock-based compensation expense included in net
    loss             |                                       |             | 2,185,463   |   |      |             |            |   |   |             |            |  
|                                                             | Stock-based compensation expense if SFAS
    No. 123 had been adopted |                                       |             | (3,171,514  | ) |      | $           | (4,028,184  | ) |   |             | (4,766,190  | )
|                                                             |                                                                       |                                       |             |             |   |      |             |             |   |   |             |            
|                                                             | Pro forma net loss attributable to common
    shareholders            |                                       | $           | (24,634,872 | ) |      | $           | (45,415,489 | ) |   | $           | (62,298,405 | )
|                                                             |                                                                       |                                       |             |             |   |      |             |             |   |   |             |            
|Loss per common share  as reported                          |                                                                       | $                                     | (0.08       | )           |   | $    | (0.18       | )           |   | $ | (0.29       | )          
|                                                             |                                                                       |                                       |             |             |   |      |             |             |   |   |             |            
|Loss per common share  pro forma                            |                                                                       | $                                     | (0.08       | )           |   | $    | (0.19       | )           |   | $ | (0.31       | )          
|                                                             |                                                                       |                                       |             |             |   |      |             |             |   |   |             |            

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

|                   |  |      |               |      |  |      |               |  |  |  |               | 
|------------------ |  | ---- | ------------- | ---- |  | ---- | ------------- |  |  |  | ------------- | 
|                   |  | 2004 |               | 2003 |  | 2002
|                   |  |      |               |      |  |     
|Risk Free Rate     |  |      | 2.14% - 3.50% |      |  |      | 2.65% - 4.84% |  |  |  | 3.91% - 6.41% | 
|Volatility         |  |      | 150%          |      |  |      | 135% - 155%   |  |  |  | 80% - 139%    | 
|Expected life      |  |      | 5 years       |      |  |      | 5 years       |  |  |  | 5 years       | 
|Expected dividends |  |      | 0%            |      |  |      | 0%            |  |  |  | 0%            | 

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 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.

Loss per share

Basic loss per share (EPS) equals net
loss divided by the number of weighted average common shares.
Diluted EPS includes potentially dilutive securities such as
stock options and convertible securities. The effect of shares
issuable upon exercise of convertible debt, convertible
preferred stock, warrants and stock options is anti-dilutive,
therefore diluted loss per share is not presented in a
comparative format.

Recent accounting standards

In December 2003, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 104,
(SAB 104), Revenue Recognition.
SAB 104 updates portions of existing interpretative
guidance in order to be consistent with current authoritative
accounting and auditing guidance and SEC rules and regulations.
The adoption of SAB 104 did not have a material effect on the
Companys consolidated financial statements.

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##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In May 2003, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. This
Statement requires that an issuer classify financial instruments
which are within its scope as a liability. Most of the guidance
in SFAS No. 150 is effective for all financial instruments
entered into or modified after May 31, 2003, and otherwise
effective at the beginning of the first interim period beginning
after June 15, 2003. The impact of the Companys
adoption of SFAS 150 on its consolidated financial
statements was to present Series H redeemable preferred
stock as a liability.

In March 2003, the FASB reached a consensus on
Emerging Issues Task Force (EITF) Issue No. 00-21,
Revenue Arrangements with Multiple Deliverables. The
consensus provides guidance on the accounting for multiple
element revenue arrangements. It also provided guidance on how
to separate multiple element revenue arrangements into separate
units of accounting and how to measure and allocate the
arrangements total consideration. The effective date of
EITF 00-21 is for revenue arrangements entered into in
fiscal periods (interim or annual) beginning after June 15,
2003. The Companys adoption of EITF 00-21 as of
July 1, 2003 has not impacted its consolidated financial
statements.

In January 2003, the FASB issued FASB
Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51. FIN 46 requires
certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the
entity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46
is effective immediately for all new variable interest entities
created or acquired after January 31, 2003. In December
2003, the FASB released a revised version of FIN 46
clarifying certain aspects of FIN 46 and providing certain
entities with exemptions from the requirements of FIN 46.
For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be
applied for the first interim or annual period ending after
March 15, 2004. NAP de las Americas-Madrid S.A. is a
variable interest entity but its current relationship indicates
that it does not require consolidation since the Company is not
the primary beneficiary. The Companys maximum related
exposure to loss is approximately $500,000 at March 31,
2004. Management does not expect the adoption of FIN 46 to
have a significant impact in the Companys consolidated
financial position or result of operations.

In April 2002, the FASB approved SFAS 145,
Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13 and Technical
Corrections. In addition to rescinding SFAS 4, 44,
and 64 and amending SFAS 13, SFAS 145 establishes a
financial reporting standard for classification of
extinguishment of debt in the financial statements in accordance
with APB 30. SFAS 145 is effective for the
Companys fiscal year ended March 31, 2004. Management
does not expect the adoption of SFAS 145 to have a material
effect on the Companys financial position. However,
SFAS 145 had an impact on the presentation of the results
of operations for the twelve months ended March 31, 2004.

4. CONTRACTS RECEIVABLE

Contracts receivable consist of the following:

|                      |  |           |         |      |  |   |        | 
|--------------------- |  | --------- | ------- | ---- |  | - | ------ | 
|                      |  |          
|                      |  | March 31,
|                      |  |          
|                      |  | 2004      |         | 2003
|                      |  |           |         |     
|Completed contracts   |  | $         |        |      |  | $ | 7,559  | 
|Contracts in progress |  |           | 303,644 |      |  |   | 21,645 | 
|Retainage             |  |           | 59,399  |      |  |   |       | 
|                      |  |           |         |      |  |   |        | 
|                      |  | $         | 363,043 |      |  | $ | 29,204 | 
|                      |  |           |         |      |  |   |        | 

F-13



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##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

5. PREPAID AND OTHER ASSETS

Prepaid and other current assets consist of the
following:

|                                                                     |  |           |           |      |  |   |         | 
|-------------------------------------------------------------------- |  | --------- | --------- | ---- |  | - | ------- | 
|                                                                     |  |          
|                                                                     |  | March 31,
|                                                                     |  |          
|                                                                     |  | 2004      |           | 2003
|                                                                     |  |           |           |     
|Prepaid expenses and other                                           |  | $         | 330,772   |      |  | $ | 228,809 | 
|Preferred stock subscription receivable
    (subsequently collected) |  |           | 265,000   |      |  |   |        | 
|Accrued interest on note receivable 
    related party              |  |           | 20,449    |      |  |   | 61,000  | 
|Receivable from related party                                        |  |           | 499,009   |      |  |   | 471,000 | 
|                                                                     |  |           |           |      |  |   |         | 
|                                                                     |  | $         | 1,115,230 |      |  | $ | 760,809 | 
|                                                                     |  |           |           |      |  |   |         | 

Other assets, long-term, consist of the following:

|                                                                                         |  |           |         |      |  |   |         | 
|---------------------------------------------------------------------------------------- |  | --------- | ------- | ---- |  | - | ------- | 
|                                                                                         |  |          
|                                                                                         |  | March 31,
|                                                                                         |  |          
|                                                                                         |  | 2004      |         | 2003
|                                                                                         |  |           |         |     
|Prepaid expenses and other                                                               |  | $         |        |      |  | $ | 399,312 | 
|Deposits and other                                                                       |  |           | 488,971 |      |  |   | 343,155 | 
|Loan costs, net of accumulated amortization of
    $121,691 and $1,526,484, respectively |  |           | 175,363 |      |  |   | 86,701  | 
|                                                                                         |  |           |         |      |  |   |         | 
|                                                                                         |  | $         | 664,334 |      |  | $ | 829,168 | 
|                                                                                         |  |           |         |      |  |   |         | 

Receivable from related party represents a note
receivable due March 31, 2004 for $360,000 from a
corporation controlled by a shareholder of the Company and
$139,009 of related accrued interest. Subsequent to
March 31, 2004, the Company collected $50,000 and extended
the maturity date on this receivable to March 31, 2005.

F-14



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##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

6. INVESTMENTS IN UNCONSOLIDATED
ENTITIES, NET

In June 2002, the Company entered into an
exclusive agreement with the Comunidad
Autonoma de Madrid to develop and operate
carrier-neutral network access points in Spain. As part of that
agreement, the parties formed NAP de las Americas 
Madrid S.A. to own and operate carrier-neutral NAPs in Spain,
modeled after the NAP of the Americas. The shareholders in this
new company are the Comunidad through its Instituto Madrileno de
Desarrollo  IMADE, the Camara Oficial de Comercio e
Industria de Madrid, Red Electrica Telecomunicaciones, S.A.,
Telvent Sistemas y Redes S.A., a subsidiary of Abengoa S.A., and
Centro de Transportes de Coslada, S.A. (CTC). At the time the
NAP de las Americas  Madrid S.A. was formed, the
Company owned 1% of its equity, which was subsequently increased
to 10%. In May 2004, the Company purchased the 20% of this
entity owned by Telvent Sistemas y Redes S.A. for approximately
$550,000, and expects to exercise before June 24, 2004 its
option to purchase the 30% of the interest owned by the
Comunidad (CTC and IMADE) for approximately $1.2 million.
The Camara has decided to retain its 20% interest. The Company
expects to close on the option exercise on or before
June 24, 2004. As a result of these transactions, the
Company will have a 60% equity interest in NAP de las
Americas  Madrid. At which time, the entity will be
consolidated.

7. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

|                                                                                             |  |           |             |      |  |   |            |  
|-------------------------------------------------------------------------------------------- |  | --------- | ----------- | ---- |  | - | ---------- | -
|                                                                                             |  |          
|                                                                                             |  | March 31,
|                                                                                             |  |          
|                                                                                             |  | 2004      |             | 2003
|                                                                                             |  |           |             |     
|Leasehold improvements                                                                       |  | $         | 50,992,419  |      |  | $ | 50,105,292 |  
|Furniture, equipment and software, including
    $4,530,101 and $4,333,889 in capital leases |  |           | 15,472,428  |      |  |   | 12,240,409 |  
|                                                                                             |  |           |             |      |  |   |            |  
|                                                                                             |  |           | 66,464,847  |      |  |   | 62,345,701 |  
|Less accumulated depreciation, including
    $3,205,036 and $1,912,405 in capital leases     |  |           | (12,650,402 | )    |  |   | (8,010,413 | )
|                                                                                             |  |           |             |      |  |   |            |  
|                                                                                             |  |           | 53,814,445  |      |  |   | 54,335,288 |  
|Equipment held for installation                                                              |  |           | 83,271      |      |  |   | 147,676    |  
|                                                                                             |  |           |             |      |  |   |            |  
|                                                                                             |  | $         | 53,897,716  |      |  | $ | 54,482,964 |  
|                                                                                             |  |           |             |      |  |   |            |  

Property and equipment at March 31, 2004 and
2003 includes approximately $53.2 million and
$53.7 million, respectively, in assets related to the NAP
of the Americas. These amounts are net of accumulated
depreciation.

During the year ended March 31, 2003, the
Company recognized an impairment charge of $450,000 related to
equipment held for installation for more than one year and
considered obsolete. The impairment charge reduced the carrying
value of the equipment to its estimated salvage value.

During the year ended March 31, 2003, the
Company reached a compromise with vendors regarding certain
billings and adjusted the asset value to the amount finally
paid. As a result the Company recorded a reduction of
approximately $1.3 million, in property and equipment.

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##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

8. GOODWILL

Goodwill consists of the following:

|                    |  |                         |            |              |  |              |           |  |  |   |           | 
|------------------- |  | ----------------------- | ---------- | ------------ |  | ------------ | --------- |  |  | - | --------- | 
|                    |  |                        
|                    |  | March 31, 2004 and 2003
|                    |  |                        
|                    |  | Gross Carrying          |            | Accumulated  |  | Net Carrying
|                    |  | Amount                  |            | Amortization |  | Amount      
|                    |  |                         |            |              |  |             
|NAP of the Americas |  | $                       | 11,764,554 |              |  | $            | 1,764,684 |  |  | $ | 9,999,870 | 

A reconciliation of net loss and loss per share
to exclude amortization expense in the prior year period follows:

|                                                          |  |                              |             |      |  |      |             |   |  |   |             |  
|--------------------------------------------------------- |  | ---------------------------- | ----------- | ---- |  | ---- | ----------- | - |  | - | ----------- | -
|                                                          |  |                             
|                                                          |  | For the year ended March 31,
|                                                          |  |                             
|                                                          |  | 2004                         |             | 2003 |  | 2002
|                                                          |  |                              |             |      |  |     
|Reported net loss attributable to common
    shareholders |  | $                            | (23,648,821 | )    |  | $    | (41,387,305 | ) |  | $ | (57,532,215 | )
|Add back: goodwill amortization                           |  |                              |            |      |  |      |            |   |  |   | 3,458,633   |  
|                                                          |  |                              |             |      |  |      |             |   |  |   |             |  
|Adjusted net loss attributable to common
    shareholders |  | $                            | (23,648,821 | )    |  | $    | (41,387,305 | ) |  | $ | (54,073,582 | )
|                                                          |  |                              |             |      |  |      |             |   |  |   |             |  
|Basic and diluted loss per share:                         |  |                              |             |      |  |      |             |   |  |   |             |  
|Reported net loss attributable to common
    shareholders |  | $                            | (0.08       | )    |  | $    | (0.18       | ) |  | $ | (0.29       | )
|Goodwill amortization                                     |  |                              |            |      |  |      |            |   |  |   | 0.02        |  
|                                                          |  |                              |             |      |  |      |             |   |  |   |             |  
|Adjusted net loss attributable to common
    shareholders |  | $                            | (0.08       | )    |  | $    | (0.18       | ) |  | $ | (0.27       | )
|                                                          |  |                              |             |      |  |      |             |   |  |   |             |  

The decline in the telecommunications industry
and resulting decline in related real estate construction and
leasing activities caused the Company to perform an impairment
analysis during the years ended March 31, 2003 and 2002 of
its promote interests in TECOTA acquired in the telecom
facilities management operations sale and of its goodwill
acquired in the Post Shell acquisition. The Companys
analyses were based on estimated fair value determined by the
discounted future expected cash flows method and anticipated
obtaining additional construction contracts for Post Shell and
additional tenants for TECOTA. Based on these analyses, the
Company determined that these assets, which are included in its
telecom facilities management and real estate services segments,
were impaired as of March 31, 2002 by approximately
$3.8 million and $3.2 million, respectively. During
the year ended March 31, 2003, no significant contracts
were awarded to Post Shell and no tenants were added to TECOTA.
As a result, the Company impaired the remaining $905,000 in
TECOTA promote interests and $2.3 million in Post Shell
goodwill.

9. NOTES PAYABLE

Notes payable consist of the following:

|                                                                                                                                                                                                                                                                                    |  |           |   |      |  |   |            | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- | - | ---- |  | - | ---------- | 
|                                                                                                                                                                                                                                                                                    |  |          
|                                                                                                                                                                                                                                                                                    |  | March 31,
|                                                                                                                                                                                                                                                                                    |  |          
|                                                                                                                                                                                                                                                                                    |  | 2004      |   | 2003
|                                                                                                                                                                                                                                                                                    |  |           |   |     
|Notes payable to unrelated parties:                                                                                                                                                                                                                                                 |  |           |   |      |  |   |            | 
|Note payable to Ocean Bank, collateralized by
    substantially all assets of the NAP of the Americas and a
    personal guaranty of the Chief Executive Officer. On
    April 30, 2003, the note payable to Ocean Bank was
    reclassified to Notes Payable to Related Parties. |  | $         |  |      |  | $ | 43,974,553 | 

F-16



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##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                          |           |            |           |  |   |           |            | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------- | --------- | ---------- | --------- |  | - | --------- | ---------- | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                          |          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                          | March 31,
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                          |          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                          | 2004      |            | 2003     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                          |           |            |          
|Unsecured notes payable to two corporations,
    interest accrues at 10%. On April 30, 2003, $1,000,000 was
    converted to Subordinated debentures. Principal and interest are
    due on April 1, 2004.(2)                                                                                                                                                                                                                                                                                                      |                                          |           | 2,800,000  |           |  |   | 4,450,000 |           
|Unsecured note payable to a corporation, interest
    accrues at 15%. Principal and interest are due on April 1,
    2004.(2)                                                                                                                                                                                                                                                                                                                                                                                      |                                          |           | 1,000,000  |           |  |   | 1,000,000 |           
|Unsecured notes payable, interest ranges from 10%
    to 15%. Principal and interest are due between April 1,
    2004 and March 2005.(2)                                                                                                                                                                                                                                                                                                                                                                          |                                          |           | 821,884    |           |  |   | 291,669   |           
|Note payable to a corporation, collateralized by
    certain assets of a director and certain shareholders of the
    Company. Interest accrues at 1% over prime, principal and
    interest are due on July 2004.(1)                                                                                                                                                                                                                                                                                              |                                          |           | 367,178    |           |  |   | 667,178   |           
|Unsecured note payable to a corporation, interest
    accrues at 9%. Due on demand.                                                                                                                                                                                                                                                                                                                                                                                                                                |                                          |           |           |           |  |   | 518,501   |           
|Unsecured note payable to a corporation, interest
    accrues at 10%. Principal and interest were due on May 30,
    2003. On April 30, 2003, amount was converted to
    Subordinated Debentures.                                                                                                                                                                                                                                                                                                                 |                                          |           |           |           |  |   | 1,500,000 |           
|Unsecured notes payable to individuals, interest
    accrues at 10%.                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                          |           |            |           |  |   |           |           
|Principal and interest were due on March 31,
    2003. On April 30, 2003, amounts were converted to
    Subordinated Debentures.                                                                                                                                                                                                                                                                                                                                                                                   |                                          |           |           |           |  |   | 1,000,000 |           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                          |           |            |           |  |   |           |           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Total notes payable to unrelated parties |           | $          | 4,989,062 |  |   | $         | 53,401,901 | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                          |           |            |           |  |   |           |           
|Notes payable to related parties:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                          |           |            |           |  |   |           |           
|Note payable to Ocean Bank, collateralized by
    substantially all assets of the NAP of the Americas and a
    personal guaranty of the Chief Executive Officer. On
    April 30, 2003, the note payable to Ocean Bank was
    reclassified to Notes Payable to Related Parties.
    Carrying amount includes an unamortized balance of a debt
    restructuring gain of $4,309,764. Interest is payable quarterly
    at an annual rate of 5.25%. Effective May 2004 annual interest
    increases to 7.5%.(3) |                                          | $         | 33,284,317 |           |  | $ |          |           
|Unsecured note payable to a corporation
    controlled by a shareholder, interest accrues at 15%. Principal
    and interest are due on April 1, 2004.(2)                                                                                                                                                                                                                                                                                                                                                          |                                          |           | 1,600,000  |           |  |   | 1,600,000 |           
|Unsecured notes payable to certain executives and
    directors of the Company and third party corporations, interest
    accrues at 13%. On April 30, 2003, $700,000 was converted
    to Subordinated Debentures. Principal and interest are due on
    April 1, 2004.(2)                                                                                                                                                                                                                                        |                                          |           | 632,660    |           |  |   | 1,500,000 |           
|Note payable to the Chief Executive Officer.
    Interest accrues at 10%. Principal and interest were due on
    June 30, 2003. On April 30, 2003, amount was converted
    to Subordinated Debentures.                                                                                                                                                                                                                                                                                                            |                                          |           |           |           |  |   | 1,000,000 |           

F-17



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##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                                                                                                                                                                                              |                                        |           |            |            |  |   |            |           | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | --------- | ---------- | ---------- |  | - | ---------- | --------- | 
|                                                                                                                                                                                                                                              |                                        |          
|                                                                                                                                                                                                                                              |                                        | March 31,
|                                                                                                                                                                                                                                              |                                        |          
|                                                                                                                                                                                                                                              |                                        | 2004      |            | 2003      
|                                                                                                                                                                                                                                              |                                        |           |            |           
|Unsecured note payable to the Chief Executive
    Officer. Interest accrues at 7.5%, payable monthly, with
    principal installments of $50,000 due on a quarterly basis
    commencing on June 26, 2002, and maturing on June 26,
    2003. |                                        |           |           |            |  |   | 100,000    |          
|Unsecured note payable to a shareholder, interest
    accrues at 10%. Due on demand.                                                                                                                                                          |                                        |           |           |            |  |   | 38,000     |          
|                                                                                                                                                                                                                                              |                                        |           |            |            |  |   |            |          
|                                                                                                                                                                                                                                              | Total notes payable to related parties |           | $          | 35,516,977 |  |   | $          | 4,238,000 | 
|                                                                                                                                                                                                                                              |                                        |           |            |            |  |   |            |          
|                                                                                                                                                                                                                                              |                                        | $         | 40,506,039 |            |  | $ | 57,639,901 |          
|Less: current portion of notes payable                                                                                                                                                                                                        |                                        |           | 9,194,145  |            |  |   | 1,464,963  |          
|                                                                                                                                                                                                                                              |                                        |           |            |            |  |   |            |          
|Notes payable, less current portion                                                                                                                                                                                                           |                                        | $         | 31,311,894 |            |  | $ | 56,174,938 |          
|                                                                                                                                                                                                                                              |                                        |           |            |            |  |   |            |          






|    |                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Expected to be paid in full, in June 2004, with
    proceeds from issuance of $75.0 million Senior Notes.                                                                                                                                                                                                                                                
|   
|(2) | The Company did not pay approximately
    $7.6 million in principal and interest which were due
    April 1, 2004 under some of its short-term notes.
    Accordingly, these notes were in default. The Company paid in
    full these short-term notes on or before June 14, 2004.
    There are no cross defaults with the notes payable to Ocean Bank.
|   
|(3) | Paid in full on June 14, 2004.                                                                                                                                                                                                                                                                                                                           

On September 5, 2001, the Company borrowed
$48 million from Ocean Bank. The loan is secured by all of
the Companys assets and allows for up to a
$25 million junior lien position on the assets of its NAP
of the Americas, Inc. subsidiary. The proceeds of the original
credit facility were used to:



| |   |                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | repay a $10 million short-term loan from
    Mr. Medina, the proceeds of which the Company had used to
    fund the build out of the NAP of the Americas (Mr. Medina,
    in turn, used the $10 million to repay a personal
    $10 million short-term loan from Ocean Bank);
|
| |  | repay $3.5 million of debt that the Company
    owed to Ocean Bank under a line of credit personally guaranteed
    by Mr. Medina;                                                                                                                                           
|
| |  | pay $1.2 million in loan costs related to
    the $48 million credit facility (including $720,000
    commitment fee); and                                                                                                                                                   
|
| |  | fund the NAP of the Americas build out costs.                                                                                                                                                                                                                                

On April 30, 2003, Ocean Bank revised its
loan with the Company by converting, at $.75 per common share,
$15.0 million of the outstanding principal balance under
the credit facility into 20 million shares of the
Companys common stock with an approximate
$9.6 million market value and extending the term of the
remaining $29.0 million until April 30, 2006. The
resulting $5.4 million debt restructuring gain was deferred
and recorded in notes payable and is being amortized as
reductions in interest expense over the life of the remaining
debt. Under the new terms, interest is payable quarterly at an
annual stated rate of 5.25% for the first twelve months and 7.5%
thereafter.

Mr. Medina has personally guaranteed the
loan with Ocean Bank. In addition to Mr. Medinas
personal guarantee of the loan, and in order to obtain the
credit facility, the bank further required Mr. Medina,
prior to the bank disbursing funds under the credit facility, to
(i) provide a $5.0 million certificate of deposit to
the bank as collateral for certain personal loans that
Mr. Medina has with the bank and (ii) commit to
accelerate the maturity date of those personal loans. In the
event of the Companys default under the credit facility
Mr. Medina also agreed to subordinate any debt that the
Company owed to Mr. Medina until the credit

F-18



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##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

facility is repaid in full. Mr. Medina has
repaid part of his personal loans to the bank through
liquidation of the $5.0 million certificate of deposit in
January 2002, leaving an outstanding principal balance of
approximately $4.8 million. In July 2003, Mr. Medina
exercised his option to extend the loan to December 31,
2003 and made a principal payment of $200,000 resulting in a
$4.6 million balance on December 31, 2003. On
February 11, 2004, Mr. Medina extended one loan with a
principal amount of approximately $3.3 million to
February 11, 2005 and made an interest payment of $63,500.
On March 8, 2004, Mr. Medina extended the maturity
date on the other loan which had a principal balance of
approximately $1.3 million to March 8, 2005 and made a
$73,446 payment of principal and interest.

On September 5, 2001 and in consideration of
Mr. Medinas agreeing to repay his indebtedness to the
bank earlier than otherwise required, pledging the certificate
of deposit to the bank and personally guaranteeing the
$48 million credit facility and approximately
$21 million of construction payables, the Company entered
into an amended and restated employment agreement with him.
Under the terms of the amended and restated employment
agreement, the Company will indemnify Mr. Medina from any
personal liability related to his guarantees of the
Companys debt, use commercially reasonable efforts to
relieve Mr. Medina of all his guarantees of the
Companys debt, provide up to $6.5 million of cash
collateral to the bank should Mr. Medina be unable to repay
the personal loans when due and provide a non interest-bearing
$5.0 million loan to Mr. Medina for as long as his
guarantees of the Companys debt exist. Mr. Medina and
the Company have agreed that the Company has the right to
withhold payment to Mr. Medina of the $1,375,000 in
convertible debt held by him until the note to the Company is
repaid. The note receivable from Mr. Medina is shown as an
adjustment to equity. The $48 million credit facility and
the note receivable from Mr. Medina were approved by the
Board of Directors. Mr. Medinas note to the Company
has a maturity date of September 30, 2004 and bears
interest at 2%, the applicable federal rate. Interest is due in
bi-annual installments. The Company reviews the collectibility
of this note on a quarterly basis.

Interest expense of approximately
$14.6 million, $11.0 million, and $9.8 million
for the years ended March 31, 2004, 2003 and 2002 were net
of amounts capitalized to leasehold improvements and real estate
inventories totaling $0, $0 and $891,644, respectively.

Aggregate maturities for notes payable as of
March 31, are as follows:

|                    |       |   |            |            | 
|------------------- | ----- | - | ---------- | ---------- | 
|2005                |       | $ | 9,194,145  |           
|2006                |       |   | 2,145,607  |           
|2007                |       |   | 29,142,360 |           
|2008                |       |   | 23,927     |           
|2009 and thereafter |       |   |           |           
|                    |       |   |            |           
|                    | Total |   | $          | 40,506,039 | 
|                    |       |   |            |           

The weighted average interest rate on notes
payables outstanding as of March 31, 2004 and maturing
within one year is 10.35%.

10. CONSTRUCTION PAYABLES

Construction payables at March 31, 2004
relate to construction at the Companys colocation facility
in Santa Clara, California and the build out of the third floor
at TECOTA.

On November 8, 2002, CRG, LLC
(CRG), an entity newly formed by a shareholder of
the Company, entered into an agreement with Cupertino Electric,
Inc. to purchase the entire $18.5 million construction
payable (including accrued interest) owed to Cupertino. On
November 11, 2002, the Company entered into an agreement
with CRG that provided the Company the option, upon the closing
of the purchase of the debt

F-19



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##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

by CRG from Cupertino, to repay the entire debt
at a discount by either issuing shares of the Companys
common stock valued at $0.75 per share or making a cash payment
of $9.9 million.

On December 5, 2002, CRG, LLC entered into
an agreement with Kinetics Mechanical Services, Inc. and
Kinetics Systems Inc. to purchase the Companys
$4.1 million construction payable (including accrued
interest) to Kinetics Mechanical Services, Inc. and Kinetics
Systems Inc. On December 5, 2002, the Company entered into
an agreement with CRG that provided the Company with the option,
upon the closing of the purchase of the debt by CRG from
Kinetics Mechanical Services, Inc. and Kinetics Systems Inc., to
repay the entire debt at a discount by either issuing shares of
the Companys common stock valued at $0.75 per share or
making a cash payment of $2.4 million.

On April 30, 2003, CRG, LLC completed the
purchase, at a discount, of the Companys
$22.6 million construction payables (including accrued
interest) to Cupertino Electric, Inc., Kinetics Mechanical
Services, Inc. and Kinetics Systems Inc., all of which were
construction contractors for the NAP of the Americas. At the
closing, CRGs purchased construction payables were
converted at $.75 per common share into 30,133,334 shares of the
Companys common stock with an approximate
$14.1 million market value in accordance with the
November 11, 2002 and the December 5, 2002 option
agreements. As a result of these transactions, the Company
recorded a gain on debt restructuring of approximately
$8.5 million.

11. CONVERTIBLE DEBT

Convertible debt consists of the following:

|                                                                                                                                                                                                                                                                                                                                   |  |           |            |      |  |   |            |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- | ---------- | ---- |  | - | ---------- | -
|                                                                                                                                                                                                                                                                                                                                   |  |          
|                                                                                                                                                                                                                                                                                                                                   |  | March 31,
|                                                                                                                                                                                                                                                                                                                                   |  |          
|                                                                                                                                                                                                                                                                                                                                   |  | 2004      |            | 2003
|                                                                                                                                                                                                                                                                                                                                   |  |           |            |     
|Subordinated secured convertible debentures due
    April 30, 2006 and convertible into shares of the
    Companys common stock at $0.50 per share. Interest at 10%
    is payable quarterly beginning July 31, 2003. (Carrying
    amount is presented net of unamortized beneficial conversion
    feature balance of $904,761) |  | $         | 24,095,239 |      |  | $ |           |  
|Subordinated secured convertible debentures due
    December 31, 2005 and convertible into shares of the
    Companys common stock at a weighted average conversion
    price of $2.14 per share. Interest at 13% is payable on each
    calendar quarter                                                                         |  |           | 10,300,000 |      |  |   | 12,155,000 |  
|Subordinated secured convertible debentures due
    August 30, 2004 and convertible into shares of the
    Companys common stock at a weighted average conversion
    price of $0.61 per share. Interest at 13.125% is payable on each
    calendar quarter                                                                       |  |           | 2,750,000  |      |  |   | 2,750,000  |  
|                                                                                                                                                                                                                                                                                                                                   |  |           |            |      |  |   |            |  
|                                                                                                                                                                                                                                                                                                                                   |  | $         | 37,145,239 |      |  | $ | 14,905,000 |  
|Less: Current portion of convertible debt                                                                                                                                                                                                                                                                                          |  |           | (250,000   | )    |  |   | (900,000   | )
|                                                                                                                                                                                                                                                                                                                                   |  |           |            |      |  |   |            |  
|Convertible debentures, less current portion                                                                                                                                                                                                                                                                                       |  | $         | 36,895,239 |      |  | $ | 14,005,000 |  
|                                                                                                                                                                                                                                                                                                                                   |  |           |            |      |  |   |            |  

The 10% debentures were issued in exchange for
$10.3 million in cash, $9.5 million in a promissory
note due in full May 30, 2003 and $5.2 million of
notes payable converted to the 10% debentures. The maker of the
$9.5 million promissory note failed to pay but agreed on
June 16, 2003 to assign the note and the debenture to an
entity newly formed by the son of a director of the Company. As
of September 22, 2003, the Company had collected the
promissory note. In connection with this transaction, the
Company recognized a beneficial conversion feature of
$9.5 million, based on the June 16, 2003 measurement
date.

F-20



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##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Prepayment by the Company is permitted under the
10% debentures subsequent to April 30, 2004. Prepayment by
the Company is permitted under the 13% and 13.125% debentures,
but will entitle holders of the 13% debentures to principal plus
warrants, or a premium over their outstanding principal and
interest based upon the following schedule:

|     |  |                  |     |  
|---- |  | ---------------- | --- | -
|Year |  | Redemption Price
|     |  |                 
|2004 |  |                  | 102 | %
|2005 |  |                  | 100 | %

As of March 31, 2004, the Company had not
paid approximately $429,000 of accrued interest due on
March 31, 2004. Subsequent to March 31, 2004, the
Company paid such amounts.

12. STOCKHOLDERS EQUITY

The Company entered into the following equity
transactions:

Preferred stock

The Company has the authority to issue 10,000,000
shares of preferred stock, par value $0.001 per share, which are
issuable in series on terms to be determined by its board of
directors.

Series H redeemable convertible preferred
stock

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

Series G convertible preferred
stock

The Company has 20 outstanding shares of
Series G convertible preferred stock (Series G
Preferred), which do not bear dividends. Conversion of the
Series G Preferred into common stock is based on the issue
price plus an 8% per annum non-compounding premium, divided by
the lesser of: (a) $1.50 per Series G Preferred share
or (b) the closing price of the Companys common
stock, as reported on the American Stock Exchange, on the
business day immediately preceding the conversion. The
Series G Preferred also has a stated liquidation preference
value of $100,000 per share plus 8% in-kind dividends since
March 1999, the date of issuance. The holders have no voting
rights except with respect to matters that affect rights related
to the Series G Preferred. The holder of these shares is a
corporation owned by Mr. Medina, Chief Executive Officer
and a shareholder of the Company. As of March 31, 2004, the
Series G Preferred shares could have been converted into
2,143,492 of the Companys common shares.

Series I convertible preferred
stock

On March 31, 2004, the Company closed on the
issuance of 400 shares of Series I 8% Convertible Preferred
Stock for $7.7 million in cash and $2.2 million in
promissory notes, together with warrants to purchase
2.8 million shares of the Companys common stock which
are exercisable for five years at $0.90 per share. The Company
has collected all amounts due under the promissory notes. The
Series I Preferred Stock is convertible into shares of the
Companys common stock at $0.75 per share. In January 2007,
the Series I Preferred Stock dividend rate will increase to
10% per year until January 2009 when it increases to 12%.
Dividends are payable, at the Companys discretion, in
shares of the Companys common stock or cash. The

F-21



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##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Company has the right to redeem the Series I
Preferred Stock at $25,000 per share plus accrued dividends at
any time after December 31, 2004. Some of the Series I
Preferred Stock shares were committed on dates where the
conversion price was less than market. Accordingly, the Company
recognized a non-cash preferred dividend of approximately
$1.0 million in determining net loss per common share for
the period ended March 31, 2004. The Series I
Preferred Stock shall vote together with the Companys
common stock based on the then current conversion ratio.

Common Stock



| |                     
| | --------------------
| | Sale of common stock

In June 2002, the NAP de las Americas 
Madrid S.A. purchased 5 million shares of the
Companys common stock at $1.00 per share. In August 2003,
as a result of the subsequent sale of certain common shares, the
Company issued an additional 3.7 million shares of its
common stock to NAP de Las Americas  Madrid S.A.

In April 2002, the Company received a binding
commitment from two directors and some shareholders for the
purchase of $7.5 million of common stock at $.75 per share.
In May 2002, the Company issued 10 million shares of its
common stock for $3.6 million in cash and the conversion of
$3.9 million in short-term promissory notes to equity.

In April 2002, the Company entered into a Put and
Warrant purchase agreement with TD Global Finance
(TDGF). On July 19, 2002, the Company exercised
its right to sell to TDGF 17,648,824 common shares for $0.58 per
share for a total of $10.2 million.



| |                             
| | ----------------------------
| | Conversion of debt to equity

In October 2003, $258,306 of debt was converted
to 344,407 shares of common stock at $0.75 per share.

In April 2003, in conjunction with the Ocean Bank
debt conversion of $15.0 million in debt to equity, the
Company issued 20 million shares of its common stock at
$0.75 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 30.1 million shares of its
common stock at $0.75 per share.

On February 19, 2002, $242,700 of
convertible debt was converted to 160,071 shares of common
stock at $1.52 per share.

During the year ended March 31, 2003,
holders of notes payable entered into irrevocable agreements and
converted approximately $.8 million in debt and accrued
interest into approximately 1.0 million shares of the
Companys common stock at $0.75 per share.

In August 2003, $45,004 of debt was converted to
60,005 shares of common stock at $0.75 per share.



| |                                   
| | ----------------------------------
| | Exercise of employee stock options

During the year ended March 31, 2004,
77,271 shares of common stock were issued in conjunction
with the exercise of 77,271 employee stock options at
prices ranging from $0.33 to $0.78 per share.



| |                     
| | --------------------
| | Exercise of warrants

In June 2003, warrants valued at approximately
$4,000 were converted to 9,500 shares of common stock at
$0.48 per share.

F-22



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##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Stock warrants

During the period from November 2000 through
March 2004, 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, 2004:

|              |  |                  |           |          |  |            |      |             |  |  |               |  |  |   |           | 
|------------- |  | ---------------- | --------- | -------- |  | ---------- | ---- | ----------- |  |  | ------------- |  |  | - | --------- | 
|              |  |                  |           |          |  |            |      | Estimated  
|              |  | No. of shares    |           | Exercise |  | Expiration |      | Fair Value 
|Issuance Date |  | able to purchase |           | Price    |  | Date       |      | at Issuance
|              |  |                  |           |          |  |            |      |            
|March 2004    |  |                  | 2,896,802 |          |  | $          | 0.90 |             |  |  | March 2009    |  |  | $ | 1,729,845 | 
|February 2004 |  |                  | 12,100    |          |  |            | 0.90 |             |  |  | February 2009 |  |  |   | 7,200     | 
|January 2004  |  |                  | 50,000    |          |  |            | 0.71 |             |  |  | January 2009  |  |  |   | 33,750    | 
|October 2003  |  |                  | 50,000    |          |  |            | 0.73 |             |  |  | October 2008  |  |  |   | 33,700    | 
|July 2003     |  |                  | 100,000   |          |  |            | 0.62 |             |  |  | July 2008     |  |  |   | 114,400   | 
|June 2003     |  |                  | 300,000   |          |  |            | 0.50 |             |  |  | June 2006     |  |  |   | 220,200   | 
|June 2003     |  |                  | 250,000   |          |  |            | 0.75 |             |  |  | June 2006     |  |  |   | 177,750   | 
|March 2003    |  |                  | 300,000   |          |  |            | 0.75 |             |  |  | March 2007    |  |  |   | 110,400   | 
|December 2002 |  |                  | 300,000   |          |  |            | 0.75 |             |  |  | March 2007    |  |  |   | 110,400   | 
|October 2002  |  |                  | 1,200,000 |          |  |            | 0.75 |             |  |  | October 2004  |  |  |   | 90,000    | 
|July 2002     |  |                  | 100,000   |          |  |            | 0.54 |             |  |  | July 2005     |  |  |   | 20,900    | 
|April 2002    |  |                  | 600,000   |          |  |            | 0.40 |             |  |  | March 2007    |  |  |   | 220,800   | 
|June 2001     |  |                  | 13,000    |          |  |            | 1.72 |             |  |  | June 2011     |  |  |   | 22,490    | 
|January 2002  |  |                  | 9,500     |          |  |            | 0.48 |             |  |  | June 2011     |  |  |   | 3,971     | 
|March 2001    |  |                  | 300,000   |          |  |            | 2.00 |             |  |  | March 2006    |  |  |   | 352,200   | 
|November 2000 |  |                  | 250,000   |          |  |            | 2.76 |             |  |  | November 2008 |  |  |   | 394,000   | 
|              |  |                  |           |          |  |            |      |             |  |  |               |  |  |   |           | 
|              |  |                  | 6,731,402 |          |  |            |      |             |  |  |               |  |  | $ | 3,642,006 | 
|              |  |                  |           |          |  |            |      |             |  |  |               |  |  |   |           | 

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 23,500,000 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 grant.
Options vest over periods not to exceed ten years.

On October 19, 2001, the Company issued
options to purchase 100,000 shares of common stock to each
member of the Companys Board of Directors, for a total of
900,000 options. The exercise price of the options is $0.67
per share and were immediately exercisable.

F-23



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##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                                                      |                |        |            |                  |  |   |      |      | 
|--------------------------------------------------------------------- | -------------- | ------ | ---------- | ---------------- |  | - | ---- | ---- | 
|                                                                      |                |        |            | Weighted Average
|                                                                      |                | Number |            | Exercise Price  
|                                                                      |                |        |            |                 
|Outstanding at March 31, 2002                                         |                |        | 12,749,451 |                  |  | $ | 1.92 |     
|Granted                                                               |                |        | 2,203,100  |                  |  |   | .46  |     
|Expired/ Terminated                                                   |                |        | (258,500   | )                |  |   | 1.69 |     
|Exercised                                                             |                |        |           |                  |  |   |     |     
|                                                                      |                |        |            |                  |  |   |      |     
|Outstanding at March 31, 2003                                         |                |        | 14,694,051 |                  |  |   | 1.70 |     
|Granted                                                               |                |        | 2,379,780  |                  |  |   | .45  |     
|Expired/ Terminated                                                   |                |        | (256,166   | )                |  |   | .99  |     
|Exercised                                                             |                |        | (64,934    | )                |  |   | .49  |     
|                                                                      |                |        |            |                  |  |   |      |     
|Outstanding at March 31, 2004                                         |                |        | 16,752,731 |                  |  |   | 1.89 |     
|                                                                      |                |        |            |                  |  |   |      |     
|Options exercisable at:                                               |                |        |            |                  |  |   |      |     
|                                                                      | March 31, 2004 |        |            | 12,706,018       |  |   |      | 1.86 | 
|                                                                      |                |        |            |                  |  |   |      |     
|                                                                      | March 31, 2003 |        |            | 9,818,051        |  |   |      | 1.90 | 
|                                                                      |                |        |            |                  |  |   |      |     
|Weighted average fair value of options granted
    during year ended: |                |        |            |                  |  |   |      |     
|                                                                      | March 31, 2004 |        | $          | 0.41             |  |   |      |      | 
|                                                                      |                |        |            |                  |  |   |      |     
|                                                                      | March 31, 2003 |        | $          | 0.41             |  |   |      |      | 
|                                                                      |                |        |            |                  |  |   |      |     

The following table summarizes information about
options outstanding at March 31, 2004:

|                         |  |                |            |              |  |          |     |             |  |   |      |  |  |  |            | 
|------------------------ |  | -------------- | ---------- | ------------ |  | -------- | --- | ----------- |  | - | ---- |  |  |  | ---------- | 
|                         |  |                |            | Average      |  |          |     |            
|                         |  |                |            | Remaining    |  | Average  |     | Number     
|                         |  |                |            | Contractual  |  | Exercise |     | Exercisable
|Range of Exercise Prices |  | Outstanding at |            | Life (Years) |  | Price    |     | Options at 
|                         |  |                |            |              |  |          |     |            
|March 31, 2004           |  |                |            |              |  |          |     |             |  |   |      | 
|$0.25-0.50               |  |                | 4,251,580  |              |  |          | 5.0 |             |  | $ | 0.34 |  |  |  | 2,503,500  | 
|$0.51-1.00               |  |                | 4,961,500  |              |  |          | 7.9 |             |  |   | 0.64 |  |  |  | 2,765,167  | 
|$1.01-1.50               |  |                | 1,347,500  |              |  |          | 5.1 |             |  |   | 1.41 |  |  |  | 1,327,833  | 
|$1.51-2.00               |  |                | 235,374    |              |  |          | 6.8 |             |  |   | 1.74 |  |  |  | 212,707    | 
|$2.01-3.00               |  |                | 1,489,825  |              |  |          | 3.8 |             |  |   | 2.85 |  |  |  | 1,429,858  | 
|$3.01-5.00               |  |                | 4,466,952  |              |  |          | 6.3 |             |  |   | 3.26 |  |  |  | 4,466,952  | 
|                         |  |                |            |              |  |          |     |             |  |   |      |  |  |  |            | 
|                         |  |                | 16,752,731 |              |  |          |     |             |  |   |      |  |  |  | 12,706,017 | 
|                         |  |                |            |              |  |          |     |             |  |   |      |  |  |  |            | 

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.

F-24



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##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

13. DATA CENTER REVENUES

Data center revenues consist of:

|                                |  |                              |            |      |  |   |            | 
|------------------------------- |  | ---------------------------- | ---------- | ---- |  | - | ---------- | 
|                                |  |                             
|                                |  | For the year ended March 31,
|                                |  |                             
|                                |  | 2004                         |            | 2003
|                                |  |                              |            |     
|Colocation                      |  | $                            | 9,861,638  |      |  | $ | 6,020,779  | 
|Exchange point services         |  |                              | 3,571,709  |      |  |   | 2,125,370  | 
|Managed & professional services |  |                              | 3,179,264  |      |  |   | 1,791,750  | 
|Contract termination fee        |  |                              | 421,766    |      |  |   | 1,095,086  | 
|                                |  |                              |            |      |  |   |            | 
|                                |  | $                            | 17,034,377 |      |  | $ | 11,032,985 | 
|                                |  |                              |            |      |  |   |            | 

During the years ended March 31, 2004 and
2003, $903,000 and $386,000 of deferred revenue were amortized
into data center services.

14. OTHER INCOME (EXPENSES)

On November 10, 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 10, 2003. On February 11, 2004, the developer
notified the Company it did not wish to proceed with
negotiations regarding the construction of a facility in
Australia. On February 19, 2004, the Company acknowledged
receipt of the developers notification, and terminated the
agreement with the developer. As required by the agreement, The
Company did not conduct any business related to the operation or
management of data centers in Australia until the agreement
terminated. 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, 2004, 2003 and 2002
as the Company incurred net operating losses in each year.

Deferred tax assets (liabilities) consists of the
following:

|                             |                                                                            |           |             |            |   |   |             |            |  
|---------------------------- | -------------------------------------------------------------------------- | --------- | ----------- | ---------- | - | - | ----------- | ---------- | -
|                             |                                                                            |          
|                             |                                                                            | March 31,
|                             |                                                                            |          
|                             |                                                                            | 2004      |             | 2003      
|                             |                                                                            |           |             |           
|Deferred tax assets:         |                                                                            |           |             |            |   |   |             |           
|                             | Charitable contributions                                                   |           | $           | 223,947    |   |   | $           | 251,010    |  
|                             | Capitalized start-up costs                                                 |           |             | 2,063,736  |   |   |             | 2,935,612  |  
|                             | Allowances and other                                                       |           |             | 11,246,433 |   |   |             | 6,873,925  |  
|                             | Net operating loss carryforwards                                           |           |             | 34,211,590 |   |   |             | 31,131,334 |  
|                             | Net operating loss carryforwards retained from
    discontinued operations |           |             | 17,280,709 |   |   |             | 17,280,709 |  
|                             | Tax credits                                                                |           |             | 245,780    |   |   |             | 245,780    |  
|                             |                                                                            |           |             |            |   |   |             |           
|Total deferred tax assets    |                                                                            |           | 65,272,195  |            |   |   | 58,718,370  |           
|                             |                                                                            |           |             |            |   |   |             |           
|Valuation allowance          |                                                                            |           | (63,283,833 | )          |   |   | (58,061,244 | )         
|                             |                                                                            |           |             |            |   |   |             |           
|Deferred tax liability:      |                                                                            |           |             |            |   |   |             |           
|                             | Other                                                                      |           |             | (1,988,362 | ) |   |             | (657,126   | )
|                             |                                                                            |           |             |            |   |   |             |           
|Total deferred tax liability |                                                                            |           | (1,988,362  | )          |   |   | (657,126    | )         
|                             |                                                                            |           |             |            |   |   |             |           
|Net deferred tax asset       |                                                                            | $         |            |            |   | $ |            |           
|                             |                                                                            |           |             |            |   |   |             |           

F-25



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##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

The Companys federal and state net
operating loss carryforwards, amounting to approximately
$137 million, begin to expire in 2011. Utilization of the
net operating losses generated prior to the AmTec merger may be
limited by the Internal Revenue Code.

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

|                                                          |  |                              |       |      |  |      |       |    |  |  |       |   
|--------------------------------------------------------- |  | ---------------------------- | ----- | ---- |  | ---- | ----- | -- |  |  | ----- | --
|                                                          |  |                             
|                                                          |  | For the year ended March 31,
|                                                          |  |                             
|                                                          |  | 2004                         |       | 2003 |  | 2002
|                                                          |  |                              |       |      |  |     
|Rate reconciliation                                       |  |                              |       |      |  |      |       |    |  |  |       |   
|Statutory rate                                            |  |                              | (34.0 | )%   |  |      | (34.0 | )% |  |  | (34.0 | )%
|State income taxes, net of federal income tax
    benefit |  |                              | (3.2  | )%   |  |      | (3.2  | )% |  |  | (3.3  | )%
|Permanent differences                                     |  |                              | 14.0  | %    |  |      | 6.8   | %  |  |  | 6.2   | % 
|Increase in valuation allowance                           |  |                              | 23.2  | %    |  |      | 30.4  | %  |  |  | 31.1  | % 
|                                                          |  |                              |       |      |  |      |       |    |  |  |       |   
|Effective tax rate                                        |  |                              | 0     | %    |  |      | 0     | %  |  |  | 0     | % 
|                                                          |  |                              |       |      |  |      |       |    |  |  |       |   

The Company expects to pay a limited amount of
tax for the years ended March 31, 2005 and 2006. The tax
costs will be primarily limited to alternative minimum taxes as
the Company anticipates utilizing its net operating loss
carryforwards and expects to have significant tax deductions
attributable to stock options exercised in the years.

16. 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 leasehold improvements, furniture and equipment.

Technology Center of the Americas LLC
(TECOTA), an entity in which the Company has a .84%
member interest, owns the building which leases the space for
the NAP of the Americas to the Company under a 20 year
lease. Rent expense under leases amounted to approximately
$5.3 million, $3.6 million and $2.7 million for
the years ended March 31, 2004, 2003 and 2002.

On November 4, 2003, the Company entered
into an agreement to lease an additional 149,184 square feet of
space on the third floor of TECOTA and extend the existing lease
for the second floor of the same property to co-terminate with
the third floor lease on May 31, 2025. Under the terms of
the lease agreement, monthly base rent payments for the third
floor space of approximately $2.4 million will commence in
April 2005. Effective June 1, 2006 and 2009, annual base
rent for the third floor space will increase to approximately
$3.0 million and $3.5 million, respectively, with
annual increases of 2.5% thereafter.

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 is
approximately $1,500,000.

F-26



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##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

Operating lease expense, in the aggregate,
amounted to approximately $7.8 million, $6.0 million,
and $7.0 million for the years ended March 31, 2004,
2003 and 2002, respectively.

At March 31, 2004, future minimum lease
payments for each of the following five years and thereafter
under non-cancellable operating and capital leases having a
remaining term in excess of one year are as follows:

|           |                              |                                             |           |           |           |   |             |             |  | 
|---------- | ---------------------------- | ------------------------------------------- | --------- | --------- | --------- | - | ----------- | ----------- |  | 
|           |                              | Capital                                     |           | Operating
|           |                              | Leases                                      |           | Leases   
|           |                              |                                             |           |          
|2005       |                              | $                                           | 1,987,346 |           |           | $ | 4,750,745   |            
|2006       |                              |                                             | 77,751    |           |           |   | 6,809,342   |            
|2007       |                              |                                             | 30,646    |           |           |   | 7,528,228   |            
|2008       |                              |                                             | 5,520     |           |           |   | 7,651,497   |            
|2009       |                              |                                             |          |           |           |   | 7,771,067   |            
|Thereafter |                              |                                             |          |           |           |   | 164,136,131 |            
|           |                              |                                             |           |           |           |   |             |            
|           | Total minimum lease payments |                                             | $         | 2,101,263 |           |   | $           | 198,647,010 | 
|           |                              |                                             |           |           |           |   |             |            
|           | Amount representing interest |                                             |           | 195,651   |           |   |             |             | 
|           |                              |                                             |           |           |           |   |             |            
|           |                              | Present value of net minimum lease payments |           | $         | 1,905,612 |   |             |             |  | 
|           |                              |                                             |           |           |           |   |             |            

Litigation

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

Guarantees

The construction of TECOTA was funded with
$48 million in equity and $61 million in construction
loans from a consortium of banks. The Company guaranteed the
loans during its construction of TECOTA. After TECOTA was built,
certain banks released the Company from the guarantee, the
result of which was to reduce the guarantee to
$5.5 million. As of March 31, 2004, TECOTA debt under
the construction loan was $35.4 million and is due in
November 2005. The Company does not expect to fund any amounts
under the guarantee.

The Company has guaranteed $4.6 million in
personal debt of Manuel D. Medina, the Companys Chief
Executive Officer and Chairman.

Other

The Company has entered into an agreement to
provide construction and management services to TECOTA for fees.
For the years ended March 31, 2004, 2003 and 2002 the
Company earned approximately $198,000, $510,000 and $515,000 in
related fees, respectively.

As of December 31, 2003, the Company had not
paid approximately $792,000 related to its tangible property
taxes. The Company negotiated a payment plan with the Miami-Dade
Tax Collector and are current under the plan.

F-27



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##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

17. RELATED PARTY TRANSACTIONS

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

The Companys Chief Executive Officer and
other related parties have either provided or guaranteed some of
the Companys debt or equity financing. In addition,
services are provided to entities in which the Company owns
stock.

Following is a summary of transactions for the
year ended March 31, 2004, 2003 and 2002 and balances with
related parties included in the accompanying balance sheet as of
March 31, 2004 and 2003.

|                                                        |  |           |            |      |  |      |           |  |  |   |           | 
|------------------------------------------------------- |  | --------- | ---------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                                                        |  |          
|                                                        |  | March 31,
|                                                        |  |          
|                                                        |  | 2004      |            | 2003 |  | 2002
|                                                        |  |           |            |      |  |     
|Rent expense                                            |  | $         | 5,308,272  |      |  | $    | 3,558,196 |  |  | $ | 2,668,647 | 
|Services purchased from related parties                 |  |           | 501,080    |      |  |      |          |  |  |   |          | 
|Property management and construction fees               |  |           | 198,000    |      |  |      | 510,000   |  |  |   | 516,000   | 
|Revenues from NAP de las Americas 
    Madrid          |  |           | 43,000     |      |  |      | 340,000   |  |  |   |          | 
|Interest income on notes receivable 
    related party |  |           | 76,284     |      |  |      | 61,000    |  |  |   |          | 
|Interest income from shareholder                        |  |           | 32,489     |      |  |      | 37,000    |  |  |   | 37,000    | 
|Interest expense                                        |  |           | 2,065,695  |      |  |      | 1,198,076 |  |  |   | 897,824   | 
|Other Assets                                            |  |           | 499,009    |      |  |      | 471,000   |  |  |   |           | 
|Note receivable  related party                         |  |           | 5,000,000  |      |  |      | 5,000,000 |  |  |   |           | 
|Notes payable to related parties                        |  |           | 35,516,977 |      |  |      | 4,238,000 |  |  |   |           | 
|Convertible debt                                        |  |           | 4,150,000  |      |  |      | 3,450,000 |  |  |   |           | 

In April 2003, two directors purchased $250,000
of the 10% subordinated debentures.

During the twelve months ended March 31,
2004, the Company purchased services from Fusion
Telecommunications International, Inc. (Fusion). The
Companys Chief Executive Officer and Chairman of the Board
of Directors has a minority ownership in Fusion and is a member
of its Board of Directors.

18. INFORMATION ABOUT THE COMPANYS
OPERATING SEGMENTS

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

During the year ended March 31, 2001, the
Company had an additional segment, telecom facilities
management, which developed, managed and leased facilities
catering primarily to the telecommunications industry. In
conjunction with the Companys change in its strategy
related to its colocation facility in Santa Clara, California,
the Company no longer considers the remaining operations to be
separate from its other two segments. Therefore, amounts related
to the colocation facility have been reclassified in the current
and prior year presentations to their respective March 31,
2003 segments.

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-28



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##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following presents information about
reportable segments:

|                             |  |             |             |            |  |             |             |       |  |   |            |   |  |   |             |  
|---------------------------- |  | ----------- | ----------- | ---------- |  | ----------- | ----------- | ----- |  | - | ---------- | - |  | - | ----------- | -
|                             |  |             |             | Telecom    |  |             |             |      
|                             |  | Data center |             | Facilities |  | Real estate |             |      
|For the year ended March 31, |  | operations  |             | Management |  | services    |             | Total
|                             |  |             |             |            |  |             |             |      
|2004                         |  |             |             |            |  |             |             |       |  |   |            |   |  |   |             |  
|                             |  |             |             |            |  |             |             |       |  |   |            |   |  |   |             |  
|Revenue                      |  | $           | 17,034,377  |            |  | $           |            |       |  | $ | 1,179,362  |   |  | $ | 18,213,739  |  
|Loss from operations         |  |             | (20,237,820 | )          |  |             |            |       |  |   | (338,587   | ) |  |   | (20,576,407 | )
|Net loss                     |  |             | (22,152,261 | )          |  |             |            |       |  |   | (338,316   | ) |  |   | (22,490,577 | )
|2003                         |  |             |             |            |  |             |             |       |  |   |            |   |  |   |             |  
|                             |  |             |             |            |  |             |             |       |  |   |            |   |  |   |             |  
|Revenue                      |  | $           | 11,032,984  |            |  | $           |            |       |  | $ | 3,660,719  |   |  | $ | 14,693,703  |  
|Loss from operations         |  |             | (21,658,738 | )          |  |             |            |       |  |   | (3,671,562 | ) |  |   | (25,330,300 | )
|Net loss                     |  |             | (37,565,136 | )          |  |             |            |       |  |   | (3,662,169 | ) |  |   | (41,227,305 | )
|2002                         |  |             |             |            |  |             |             |       |  |   |            |   |  |   |             |  
|                             |  |             |             |            |  |             |             |       |  |   |            |   |  |   |             |  
|Revenue                      |  |             | 3,215,897   |            |  | $           |            |       |  |   | 12,656,587 |   |  | $ | 15,872,484  |  
|Loss from operations         |  |             | (26,249,509 | )          |  |             | (16,340,634 | )     |  |   | (8,961,576 | ) |  |   | (51,551,719 | )
|Net loss                     |  |             | (34,971,359 | )          |  |             | (16,682,059 | )     |  |   | (5,718,797 | ) |  |   | (57,372,215 | )
|Assets, as of                |  |             |             |            |  |             |             |       |  |   |            |   |  |   |             |  
|                             |  |             |             |            |  |             |             |       |  |   |            |   |  |   |             |  
|March 31, 2004               |  | $           | 77,101,579  |            |  | $           |            |       |  | $ | 331,124    |   |  | $ | 77,432,703  |  
|March 31, 2003               |  | $           | 69,303,443  |            |  | $           |            |       |  | $ | 298,070    |   |  | $ | 69,601,513  |  

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

|                                   |                          |                              |             |             |   |      |             |             |   |   |             |             |  
|---------------------------------- | ------------------------ | ---------------------------- | ----------- | ----------- | - | ---- | ----------- | ----------- | - | - | ----------- | ----------- | -
|                                   |                          |                             
|                                   |                          | For the year ended March 31,
|                                   |                          |                             
|                                   |                          | 2004                         |             | 2003        |   | 2002
|                                   |                          |                              |             |             |   |     
|Total segment loss from operations |                          | $                            | (20,576,407 | )           |   | $    | (25,330,300 | )           |   | $ | (51,551,719 | )          
|Debt restructuring                 |                          |                              | 8,475,000   |             |   |      |            |             |   |   |             |            
|Inducement on debt conversion      |                          |                              |            |             |   |      | (4,871,245  | )           |   |   |            |            
|Interest income                    |                          |                              | 131,548     |             |   |      | 136,278     |             |   |   | 97,237      |            
|Interest expense                   |                          |                              | (14,624,922 | )           |   |      | (11,007,683 | )           |   |   | (9,750,473  | )          
|Gain on real estate held for sale  |                          |                              |            |             |   |      |            |             |   |   | 4,185,728   |            
|Other income (expense)             |                          |                              | 4,104,204   |             |   |      | (154,355    | )           |   |   | (352,988    | )          
|                                   |                          |                              |             |             |   |      |             |             |   |   |             |            
|                                   | Loss before income taxes |                              | $           | (22,490,577 | ) |      | $           | (41,227,305 | ) |   | $           | (57,372,215 | )
|                                   |                          |                              |             |             |   |      |             |             |   |   |             |            

F-29



---



##### Table of Contents



TERREMARK WORLDWIDE, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

19. SUPPLEMENTAL CASH FLOW
INFORMATION

|                                                            |                                                                                             |                              |   |            |   |      |   |            |   |  |   |           |  
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|                                                            |                                                                                             | For the year ended March 31,
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|                                                            |                                                                                             | 2004                         |   | 2003       |   | 2002
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|Supplemental disclosures of cash flow information:          |                                                                                             |                              |   |            |   |      |   |            |   |  |   |          
|                                                            | Cash paid for interest                                                                      |                              | $ | 7,349,467  |   |      | $ | 7,321,545  |   |  | $ | 5,318,320 |  
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|                                                            | Taxes Paid                                                                                  |                              |   |           |   |      |   |           |   |  |   |          |  
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|Non-cash operating, investing and financing
    activities: |                                                                                             |                              |   |            |   |      |   |            |   |  |   |          
|                                                            | Warrants issued for services                                                                |                              |   | 644,597    |   |      |   | 612,500    |   |  |   | 944,113   |  
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|                                                            | Conversion of notes payable to convertible debt                                             |                              |   | 5,450,000  |   |      |   |           |   |  |   |          |  
|                                                            |                                                                                             |                              |   |            |   |      |   |            |   |  |   |          
|                                                            | Beneficial conversion feature on issuance of
    convertible debentures and preferred stock |                              |   | 10,472,021 |   |      |   |           |   |  |   |          |  
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|                                                            | Assets acquired under capital leases                                                        |                              |   | 196,211    |   |      |   |           |   |  |   | 4,293,762 |  
|                                                            |                                                                                             |                              |   |            |   |      |   |            |   |  |   |          
|                                                            | Warrants exercised and converted to equity                                                  |                              |   | 3,971      |   |      |   |           |   |  |   | 29,000    |  
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|                                                            | Conversion of accounts payable to equity                                                    |                              |   | 229,588    |   |      |   | 361,491    |   |  |   |          |  
|                                                            |                                                                                             |                              |   |            |   |      |   |            |   |  |   |          
|                                                            | Conversion of debt and related accrued interest
    to equity                               |                              |   | 9,420,004  |   |      |   | 4,205,686  |   |  |   |          |  
|                                                            |                                                                                             |                              |   |            |   |      |   |            |   |  |   |          
|                                                            | Conversion of construction payables and accrued
    interest to equity                      |                              |   | 14,400,977 |   |      |   |           |   |  |   |          |  
|                                                            |                                                                                             |                              |   |            |   |      |   |            |   |  |   |          
|                                                            | Conversion of liabilities of discontinued
    operations to equity                          |                              |   |           |   |      |   | 370,000    |   |  |   |          |  
|                                                            |                                                                                             |                              |   |            |   |      |   |            |   |  |   |          
|                                                            | Forgiveness of construction payables                                                        |                              |   |           |   |      |   | 1,290,013  |   |  |   |          |  
|                                                            |                                                                                             |                              |   |            |   |      |   |            |   |  |   |          
|                                                            | Conversion of convertible debt and related
    accrued interest to equity                   |                              |   | 258,306    |   |      |   | 17,080,476 |   |  |   | 242,700   |  
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|                                                            | Conversion of common stock subscriptions to
    common stock and paid in capital            |                              |   |           |   |      |   |           |   |  |   |          |  
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|                                                            | Issuance of note payable for other asset                                                    |                              |   |            |   |      |   | 1,000,000  |   |  |   |          |  
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|                                                            | Cancellation of warrants                                                                    |                              |   | 26,575     |   |      |   |           |   |  |   | 614,822   |  
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|                                                            | Non-cash preferred dividend                                                                 |                              |   | (1,158,244 | ) |      |   | (160,000   | ) |  |   | (160,000  | )
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F-30