<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to
Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 26, 1999
StarMedia Network, Inc.
------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware
------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
1-15015 06-1461770
--------------------------------------- -------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
29 WEST 36TH STREET, NEW YORK, NY 10018
-----------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(212) 548-9600
------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
N.A.
------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On May 26, 1999, StarMedia Network, Inc., a Delaware corporation
("StarMedia" or the "Company"), acquired all of the outstanding stock of Wass
Net, S.L., a company organized under the laws of Spain ("Wass Net"). The
acquisition was completed pursuant to the terms of a Share Purchase Agreement,
dated as of May 4, 1999, by and among Starmedia, Wass Net, Geradons, S.L.,
Salvador Porte and Eduardo Kawas. Wass Net is a Spanish-language online service
with extensive community applications. Prior to the acquisition, all of the
outstanding stock of Wass Net was owned by Geradons, S.L. The consideration
for the acquisition consisted of an aggregate of 1,133,334 shares of
StarMedia common stock, par value $0.001 per share.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA CONSOLIDATED FINANCIAL INFORMATION AND
EXHIBITS
StarMedia hereby files this Form 8-K to file the financial statements and
related pro forma consolidated financial statements required pursuant to Item 7
of Form 8-K with respect to the Wass Net merger.
(a) Financial Statements of Business Acquired
(b) Pro Forma Consolidated Financial Information
The Pro Forma Consolidated Financial Statements are based on the historical
financial statements of the Company, adjusted to give effect to the following
transactions:
a) the sale of 3,727,272 shares of common stock at $11 per share
to six strategic investors between April 30, 1999 and May 5,
1999, net of costs;
b) the issuance of 8,050,000 shares of common stock in connection
with the Company's initial public offering at $15 per share,
less related costs, on May 25, 1999 and the conversion of
31,996,667 shares of redeemable convertible preferred stock in
connection therewith;
c) the Wass Net Merger; and
d) the acquisition of KD Sistemas de Informacao, Ltda ("KD
Acquisition") on April 13, 1999
The Pro Forma Consolidated Balance Sheet at March 31, 1999 assumes that the four
transactions noted above occurred on March 31, 1999. The Pro Forma Consolidated
Statements of Operations for the three months ended March 31, 1999 and for the
year ended December 31, 1998 assume that the KD Acquisition occurred on January
1, 1998. Additionally, the Pro Forma Consolidated Statements of Operations for
the three months ended March 31, 1999 and 1998 and for the years ended December
31, 1998 and 1997, reflect the Wass Net Merger which was accounted for as a
pooling of interests. Accordingly, the Pro Forma Consolidated Financial
Statements include the results of Wass Net for all periods presented.
The Pro Forma Consolidated Financial Statements should be read in conjunction
with the audited consolidated financial statements of the Company and the
related notes thereto which are included in the Company's Registration
Statement on Form S-1, as amended, dated May 25, 1999, and the Company's
Form 8-K filed on June 25, 1999 (each as filed with the Securities and
Exchange Commission) and the audited financial statements of Wass Net that are
filed herewith.
The Pro Forma Consolidated Financial Information does not purport to present
what the Company's results of operations would actually have been if the
strategic investors, initial public offering, the KD Acquisition, and Wass Net
Merger had occurred on the assumed dates, as specified above, or to project the
Company's financial condition or results of operations for any future period.
(c) Exhibits
Exhibit Number Description
2.1 Share Purchase Agreement, dated as of May 4, 1999, by and
among StarMedia, Wass Net and the shareholders of Wass Net
(Incorporated by reference to Exhibit 10.19 of the Company's
Registration Statement, Form S-1, No. 333-74659)
23.1 Consent of Lavinia Auditors, S.L.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
2
<PAGE>
REPORT OF INDEPENDENT PUBLIC AUDITORS
Board of Directors and Stockholders
Wass Net, S.L.
We have audited the accompanying balance sheets of Wass Net, S.L. (the
"Company") as of December 31, 1998 and 1997, and the related statements of
operations and comprehensive income (loss), changes in stockholders' equity and
cash flows for the year ended December 31, 1998 and the period from August 29 to
December 31, 1997. 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 in accordance with generally accepted
auditing standards in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Wass Net, S.L. at
December 31, 1998 and 1997 and its results of operations and cash flows for the
year ended December 31, 1998 and the period from August 29 to December 31, 1997,
in conformity with generally accepted accounting principles in the United
States.
Barcelona
July 23, 1999
LAVINIA AUDITORS, S.L.
Numero del R.O.A.C. SO998
---------------------
Fdo.: Jaume Pigem Jutglar
3
<PAGE>
WASS NET, S.L.
BALANCE SHEETS
(Amounts expressed in U.S. dollars, except as indicated)
<TABLE>
<CAPTION>
December 31, December
1998 31,1997
---------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 7 -
Short-term investments 172 6,816
Accounts receivable 2,789 11,005
Other 1,333 2,887
---------------- ---------------
Total current assets 4,301 20,708
Equipment and other fixed assets, net 54,029 3,364
Deposits and other assets 274 258
---------------- ---------------
TOTAL ASSETS $ 58,604 24,330
---------------- ---------------
---------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,940 6,134
Obligations under bank credit facilities 12,096 11,704
---------------- --------------
Total liabilities 25,036 17,838
--------------- --------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Shareholders' equity:
Capital stock, 7,000 and 500 ordinary shares
authorized, issued and outstanding,
respectively, par value 1,000pesetas 45,840 3,356
Additional paid-in capital 51,367
Accumulated comprehensive income (loss)
currency translation adjustment 5,511 (66)
Retained earnings (accumulated deficit) (69,150) 3,202
-------- --------
Total shareholders' equity 33,568 6,492
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $58,604 24,330
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
4
<PAGE>
WASS NET, S.L.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Amounts expressed in U.S. dollars)
<TABLE>
<CAPTION>
For the period
For the year from August 29
Ended December to December
31, 1998 31, 1997
--------------------- ------------------
<S> <C> <C>
REVENUES $ 20,541 12,225
OPERATING COSTS AND EXPENSES
Product and technology development,
sales and marketing, general and
administrative (84,292) (7,731)
Depreciation (7,008) (117)
--------------------- ------------------
INCOME (LOSS) FROM OPERATIONS (70,759) 4,377
OTHER INCOME (EXPENSE)
Interest expense (2,669) -
Interest income 1,076 197
--------------------- ------------------
(1,593) 197
--------------------- ------------------
INCOME (LOSS) BEFORE INCOME TAXES (72,352) 4,574
PROVISION FOR INCOME TAXES - 1,372
--------------------- ------------------
NET INCOME (LOSS) $ (72,352) 3,202
--------------------- ------------------
--------------------- ------------------
COMPREHENSIVE INCOME (LOSS)
Net income (loss) $ (72,352) 3,202
Change in foreign currency translation adjustment 5,577 (66)
--------------------- ------------------
Comprehensive income (loss) $ (66,775) 3,136
--------------------- ------------------
--------------------- ------------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
5
<PAGE>
WASS NET, S.L.
STATEMENTS OF CASH FLOWS
(Amounts expressed in U.S. dollars)
<TABLE>
<CAPTION>
For the period
For the year from August 29
ended December to December 31,
31, 1998 1997
--------------------- -------------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) (72,352) 3,202
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation 7,008 117
Changes in operating assets and liabilities
Accounts receivable 8,438 (11,078)
Accounts payable 6,075 6,175
Other 1,644 (2,906)
--------------------- -------------------
Net cash used in operating activities (49,187) (4,490)
--------------------- -------------------
Cash flows from investing activities
Additions to equipment (54,768) (3,503)
Purchases of short-term investments - (6,862)
Sales of short-term investments 6,699 -
Other - (260)
--------------------- -------------------
Net cash used in investing activities (48,069) (10,625)
--------------------- -------------------
Cash flows from financing activities
Capital contributions 42,484 3,356
Loan from shareholders (subsequently contributed to capital) 54,261 -
Proceeds from credit facilities, net (331) 11,782
--------------------- -------------------
Net cash provided by financing activities 96,414 15,138
--------------------- -------------------
Effects of foreign exchange rate changes on cash 849 (23)
--------------------- -------------------
Increase in cash 7 -
Cash at beginning of the year - -
--------------------- -------------------
Cash at end of the year 7 -
--------------------- -------------------
--------------------- -------------------
Cash paid during the year for taxes - -
--------------------- -------------------
--------------------- -------------------
Cash paid during the year for interest 2,669 -
--------------------- -------------------
--------------------- -------------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
6
<PAGE>
WASS NET, S.L.
STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts expressed in U.S. dollars)
<TABLE>
For the period
For the year from August 29
ended December to December
31, 1998 31,1997
-------------------- -------------------
<S> <C> <C>
SHARES
Initial balance as of January 1 500 -
Capital increase 6,500 500
-------------------- -------------------
Balance December 31 7,000 500
-------------------- -------------------
-------------------- -------------------
CAPITAL STOCK:
Initial balance as of January 1 $ 3,356 $ -
Capital increase 42,484 3,356
-------------------- -------------------
Balance December 31 45,840 3,356
-------------------- -------------------
ADDITIONAL PAID-IN CAPITAL
Initial balance as of January 1 - -
Contribution to capital 51,367 -
-------------------- -------------------
Balance December 31 51,367 -
-------------------- -------------------
ACCUMULATED COMPREHENSIVE INCOME:
Cumulative translation adjustments-
Initial balance as of January 1 (66) -
Change in the year 5,577 (66)
-------------------- -------------------
Balance December 31 5,511 (66)
-------------------- -------------------
RETAINED EARNINGS (ACCUMULATED DEFICIT)
Initial balance as of January 1 3,202 -
Net income (loss) for the year (72,352) 3,202
-------------------- -------------------
Balance December 31 (69,150) 3,202
-------------------- -------------------
Total shareholders' equity $ 33,568 $ 6,492
-------------------- -------------------
-------------------- -------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
WASS NET, S.L.
NOTES TO FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS, EXCEPT AS OTHERWISE INDICATED)
As of and for the year ended December 31, 1998 and the period from
August 29 to December 31, 1997
1. BACKGROUND
Wass Net, S.L. (the "Company") was incorporated in Spain on August 29, 1997. The
Company developed and maintains WWW.Latinmail.com, a branded Internet on-line
network (the "Network") located in the World Wide Web. The Network is organized
around interest specific channels, community features and search capabilities
targeted to Latin America.
2. BASIS OF PRESENTATION
The Company maintains its statutory accounting records and prepares its
underlying statutory annual accounts in pesetas and in the Spanish language, in
accordance with accounting principles and criteria generally accepted in Spain.
The Company's financial statements as of December 31, 1998 and 1997 were
originally prepared in local currency and in the Spanish language. The
accompanying financial statements herein presented have been translated into
U.S. dollars and adjusted to be in conformity with generally accepted accounting
principles in the United States ("U.S. GAAP"), in accordance with the criteria
set forth in Statement of Financial Accounting Standards ("SFAS") No.52,
"Foreign Currency Translation".
The accompanying financial statements stated in U.S. dollars have been
translated at the official exchange rate prevailing at December 31, 1998
(Pesetas 142 to US$1.00) and December 31, 1997 (Pesetas 151 to US$1.00). The
criteria for translating the revenue and expense accounts are the average rates
prevailing during the period. The gain or loss resulting from this translation
process is included in the Cumulative Translation Adjustment component of
shareholders' equity.
3. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies applied in the preparation and presentation
of the financial statements are summarized as follows:
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
8
<PAGE>
FOREIGN CURRENCY TRANSACTIONS
Accounts receivable and payable denominated in foreign currencies are recorded
at the exchange rates in effect on the relevant transaction dates. Such
receivables and payables are adjusted to current exchange rates as of the
balance sheet date.
.. SHORT-TERM INVESTMENTS
Short-term investments are stated at cost plus income accrued to the balance
sheet date, amounting to $190, and are comprised of investment funds.
ACCOUNTS RECEIVABLE
Accounts receivable are stated at their estimated net realizable value.
EQUIPMENT AND OTHER FIXED ASSETS
Equipment and other fixed assets are stated at cost of purchase less accumulated
depreciation. Depreciation is calculated using the straight-line method. The
annual rates used take into consideration the estimated useful lives of the
assets as follows:
Software 5 years
Furniture and fixtures 10 years
Computer equipment 4 years
Vehicles 3 years
REVENUES, COSTS AND EXPENSES
Revenues, costs and expenses are recognized on the accrual basis. The Company's
revenues are derived from the sale of advertisements. Advertising revenues are
recognized ratably in the period in which the advertisement is displayed,
provided that no significant Company obligations remain outstanding and
collection of the resulting receivable is probable.
COMPREHENSIVE INCOME
The Company reports comprehensive income in accordance with SFAS No. 130,
"Reporting Comprehensive Income". SFAS No. 130 established rules for the
reporting and display of comprehensive income and its components. SFAS No. 130
requires foreign currency translation adjustments to be included in
comprehensive income.
9
<PAGE>
INCOME TAXES
The Company accounts for income taxes pursuant to the asset and liability method
which requires deferred income tax assets and liabilities to be computed
annually for temporary differences between the financial statement and the tax
bases of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to effect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. The income tax provision or credit
is the tax payable or refundable for the period plus or minus the change during
the period in deferred tax assets and liabilities.
4. ACCOUNTS RECEIVABLE
Accounts receivable as of December 31, 1998 and 1997 were comprised of:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, 1998 December 31,
1997
--------------------- -------------------
Media Contacts, S.A. $ -- $ 6,856
StarMedia Network, Inc (see Note 11) 2,789 --
Other -- 4,149
--------------------- -------------------
$ 2,789 $ 11,005
--------------------- -------------------
--------------------- -------------------
</TABLE>
5. EQUIPMENT AND OTHER FIXED ASSETS
Equipment and other fixed assets were comprised of:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
-------------------- -------------------
<S> <C> <C>
Software $ 22,822 169
Furniture and fixtures 1,690 1,589
Computer equipment 1,831 1,722
Vehicles 35,211 --
-------------------- -------------------
61,554 3,480
Accumulated depreciation (7,525) (116)
-------------------- -------------------
Net $ 54,029 3,364
-------------------- -------------------
-------------------- -------------------
</TABLE>
10
<PAGE>
6. ACCOUNTS PAYABLE AND BANK LOANS
Accounts payable and bank loans as of December 31, 1998 and 1997 were comprised
of:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
--------------------- --------------------
<S> <C> <C>
Suppliers $ 10,249 3,473
V.A.T. and other taxes payable 2,691 2,661
Obligations under bank credit facilities 12,096 11,704
--------------------- --------------------
$ 25,036 17,838
--------------------- --------------------
--------------------- --------------------
</TABLE>
Short-term obligations under bank credit revolving loans cannot exceed $12,500
and bear interest at 8.5%.
7. INCOME TAXES
As of December 31, 1998, the Company had net operating loss carry-forwards
available for income tax reporting purposes of approximately $18,100 expiring in
2008 through 2009 which upon recognition based on current tax regulations would
generate tax benefits of approximately $5,400. There were no other material
temporary differences. Therefore, the Company had deferred tax assets of
approximately $5,400 at December 31, 1998, related to the net operating loss
carry-forwards. The Company has fully provided for these assets through a
valuation allowance due to uncertainties surrounding their realization.
The reconciliation between the net loss for the year ended December 31, 1998 and
the net loss for corporate income tax purposes is as follows:
<TABLE>
<CAPTION>
<S> <C>
Net loss $ (72,352)
Permanent difference 54,261
----------------
Net loss for income tax purposes $ (18,091)
----------------
----------------
</TABLE>
11
<PAGE>
The Company had a current income tax provision of $0 and $1,372 for the year
ended December 31, 1998 and the period from August 29, 1997 to December 31,
1997. The reconciliation of the effective income tax rate to the statutory rate
is as follows:
<TABLE>
<CAPTION>
For the period
For the year from August
ended December 29,1997 to
31, 1998 December 31, 1997
-------------------- ---------------------
<S> <C> <C>
Statutory income tax rate 30.0% 30.0%
Permanent difference (22.5%) --
Effect of valuation allowance (7.5%) --
-------------------- ---------------------
Effective income tax rate -- 30.0%
-------------------- ---------------------
-------------------- ---------------------
</TABLE>
The permanent difference related to extraordinary income recorded for Spanish
statutory and income tax purposes for shareholder loans which were forgiven
during the year (see Note 9). For US GAAP purposes these amounts have been
recorded as additional paid-in capital.
The Company is open to tax inspection for the period since it was incorporated.
8. CAPITAL STOCK
Capital stock is comprised of 7,000 and 500 shares as of December 31, 1998 and
1997, respectively, and owned as follows:
<TABLE>
<CAPTION>
December 31,1998 December 31, 1997
-------------------------------------- --------------------------------------------
Number Amount Number Amount
------------ ----------------------- -------------- -----------------------
<S> <C> <C> <C> <C>
Salvador Porte Llinas 5,600 $ 36,672 $ --
Eduardo Kawas Pino 1,400 9,168 --
Roberto E. Ortiz de Zeballos -- 400 2,685
Juan Rafael Fernandez Calero -- 100 671
------------ ----------------------- -------------- -----------------------
7,000 $ 45,840 500 $ 3,356
------------ ----------------------- -------------- -----------------------
------------ ----------------------- -------------- -----------------------
</TABLE>
12
<PAGE>
To the Stockholders of
Wass Net, S.L.
(1) We have reviewed the accompanying balance sheets of WASS NET, S.L.(a Spanish
corporation), translated into U.S. dollars, as of March 31, 1999 and 1998, and
the related translated statements of income and comprehensive income changes in
shareholders' equity and cash flows for the three-month periods then ended.
These financial statements are the responsibility of the Company's management.
(2) We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of person responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
(3) These translated financial statements have been prepared as the basis for
application of the equity method by its shareholders and, accordingly, they
translate the assets, liabilities, shareholders' equity, revenues and expenses
of Wass Net, S.L. for that purpose, as explained in Note 2.
(4) Based on our reviews, we are not aware of any material modification that
should be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles in the United States.
Barcelona,
July 23, 1999.
LAVINIA AUDITORS, S.L.
Numero del R.O.A.C. SO998
---------------------
Fdo.: Jaume Pigem Jutglar
13
<PAGE>
WASS NET, S.L.
BALANCE SHEETS
(Amounts expressed in U.S. dollars, except as indicated)
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
--------------------- --------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 30 2,837
Short-term investments 158 6,556
Accounts receivable 2,697 5,652
Due from shareholders -- 3,603
Other 8 465
--------------------- --------------------
Total current assets 2,893 19,113
Equipment and other fixed assets, net 45,508 3,086
Deposits and other assets 252 248
--------------------- --------------------
TOTAL ASSETS $ 48,653 22,447
--------------------- --------------------
--------------------- --------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,760 3,580
Due to shareholders 22,714 --
Obligations under bank credit facilities 2,873 11,575
---------------------- ---------------------
Total current liabilities 30,347 15,155
---------------------- ---------------------
Shareholders' equity:
Capital stock, 7,000 and 500 ordinary shares authorized, issued and
outstanding, respectively, par value 1,000
pesetas 45,840 3,356
Additional paid-in capital 51,367 --
Accumulated comprehensive income (loss)-
currency translation adjustment 3,026 (328)
Retained earnings (accumulated deficit) (81,927) 4,264
---------------------- ---------------------
Total shareholders' equity 18,306 7,292
--------------------- --------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 48,653 22,447
--------------------- --------------------
--------------------- --------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
WASS NET, S.L.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Amounts expressed in U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
March 31, 1999 March 31, 1998
-------------------- ------------------
<S> <C> <C>
REVENUES $ 11,571 4,753
OPERATING COSTS AND EXPENSES
Product and technology development, sales and
marketing, general and administrative (19,874) (2,555)
Depreciation (4,095) (152)
-------------------- ------------------
INCOME (LOSS) FROM OPERATIONS (12,398) 2,046
OTHER EXPENSE
Interest expense (379) (529)
-------------------- ------------------
INCOME (LOSS) BEFORE INCOME TAXES (12,777) 1,517
PROVISION FOR INCOME TAXES -- 455
-------------------- ------------------
NET INCOME (LOSS ) $ (12,777) 1,062
-------------------- ------------------
-------------------- ------------------
COMPREHENSIVE INCOME (LOSS) $
Net income (loss) (12,777) 1,062
Change in foreign currency translation adjustment (2,485) (328)
-------------------- ------------------
Comprehensive income (loss) $ (15,262) 734
-------------------- ------------------
-------------------- ------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
WASS NET, S.L.
STATEMENTS OF CASH FLOWS
(Amounts expressed in U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
March 31, 1999 March 31, 1998
-------------------- --------------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (12,777) 1,062
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 4,095 152
Changes in operating assets and liabilities
Accounts and other receivables (146) 1,346
Accounts payable (7,283) (2,349)
Other 1,245 2,341
-------------------- --------------------
Net cash (used in) provided by operating activities (14,866) 2,552
-------------------- --------------------
Cash flows from financing activities
Proceeds from credit facilities, net (8,425) 322
Proceeds from shareholders 23,316 --
-------------------- --------------------
Net cash provided by financing activities 14,891 322
-------------------- --------------------
Effects of foreign exchange rate changes on cash (2) (37)
-------------------- --------------------
Increase in cash 23 2,837
Cash at beginning of the period 7 --
-------------------- --------------------
Cash at end of the period $
30 2,837
-------------------- --------------------
-------------------- --------------------
Cash paid during the period for taxes -- --
-------------------- --------------------
-------------------- --------------------
Cash paid during the period for interest $ 379 529
-------------------- --------------------
-------------------- --------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
WASS NET, S.L.
STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts expressed in U.S. dollars)
(Unaudited)
<TABLE>
For the three For the three
months ended months ended
March 31, 1999 March 31, 1998
-------------------- -------------------
<S> <C> <C>
SHARES
Initial balance as of January 1 7,000 500
Change in the period -- --
-------------------- -------------------
Balance March 31 7,000 500
-------------------- -------------------
-------------------- -------------------
CAPITAL STOCK:
Initial balance as of January 1 $ 45,840 $ 3,356
Change in the period -- --
-------------------- -------------------
Balance March 31 45,840 3,356
-------------------- -------------------
ADDITIONAL PAID-IN CAPITAL
Initial balance as of January 1 51,367 --
Change in the period -- --
-------------------- -------------------
Balance March 31 51,367 -
-------------------- -------------------
ACCUMULATED COMPREHENSIVE INCOME:
Cumulative translation adjustments-
Initial balance as of January 1 5,577 (66)
Change in the period (2,551) (262)
-------------------- -------------------
Balance March 31 3,026 (328)
-------------------- -------------------
RETAINED EARNINGS (ACCUMULATED DEFICIT):
Initial balance as of January 1 (69,150) 3,202
Net income (loss) for the period (12,777) 1,062
-------------------- -------------------
Balance March 31 (81,927) 4,264
-------------------- -------------------
Total shareholders' equity $ 18,306 $ 7,292
-------------------- -------------------
-------------------- -------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
WASS NET, S.L.
NOTES TO FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS, EXCEPT AS OTHERWISE INDICATED)
AS OF AND FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1999 AND 1998
(Unaudited)
1. BACKGROUND
Wass Net, S.L. (the "Company") was incorporated in Spain on August 29, 1997. The
Company developed and maintains WWW.Latinmail.com, a branded Internet on-line
network (the "Network") located in the World Wide Web. The Network is organized
around interest specific channels, community features and search capabilities
targeted to Latin America.
2. BASIS OF PRESENTATION
The Company maintains its statutory accounting records and prepares its
underlying statutory annual accounts in pesetas and in the Spanish language, in
accordance with accounting principles and criteria generally accepted in Spain.
The Company's financial statements as of March 31, 1999 and 1998 were originally
prepared in local currency and in the Spanish language. The accompanying
financial statements herein presented have been translated into U.S. dollars and
adjusted to be in conformity with generally accepted accounting principles in
the United States ("U.S. GAAP"), in accordance with the criteria set forth in
Statement of Financial Accounting Standards ("SFAS") No.52, "Foreign Currency
Translation".
The accompanying financial statements stated in U.S. dollars have been
translated at the official exchange rate prevailing at March 31, 1999 (Pesetas
155 to US$1.00) and March 31, 1998 (Pesetas 157 to US$1.00). The criteria for
translating the revenue and expense accounts are the average rates prevailing
during the period. The gain or loss resulting from this translation process is
included in the Cumulative Translation Adjustment component of shareholders'
equity.
3. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies applied in the preparation and presentation
of the financial statements are summarized as follows:
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
18
<PAGE>
FOREIGN CURRENCY TRANSACTIONS
Accounts receivable and payable denominated in foreign currencies are recorded
at the exchange rates in effect on the relevant transaction dates. Such
receivables and payables are adjusted to current exchange rates as of the
balance sheet date.
.. SHORT-TERM INVESTMENTS
Short-term investments are stated at cost plus income accrued to the balance
sheet date, and are comprised of investment funds.
ACCOUNTS RECEIVABLE
Accounts receivable are stated at their estimated net realizable value.
EQUIPMENT AND OTHER FIXED ASSETS
Equipment and other fixed assets are stated at cost of purchase less accumulated
depreciation. Depreciation is calculated using the straight-line method. The
annual rates used take into consideration the estimated useful lives of the
assets as follows:
<TABLE>
<S> <C>
Software 5 years
Furniture and fixtures 10 years
Computer equipment 4 years
Vehicles 3 years
</TABLE>
REVENUES, COSTS AND EXPENSES
Revenues, costs and expenses are recognized on the accrual basis. The Company's
revenues are derived from the sale of advertisements. Advertising revenues are
recognized ratably in the period in which the advertisement is displayed,
provided that no significant Company obligations remain outstanding and
collection of the resulting receivable is probable.
COMPREHENSIVE INCOME
The Company reports comprehensive income in accordance with SFAS No. 130,
"Reporting Comprehensive Income". SFAS No. 130 established rules for the
reporting and display of comprehensive income and its components. SFAS No. 130
requires foreign currency translation adjustments to be included in
comprehensive income.
19
<PAGE>
INCOME TAXES
The Company accounts for income taxes pursuant to the asset and liability method
which requires deferred income tax assets and liabilities to be computed
annually for temporary differences between the financial statement and tax bases
of assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to effect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. The income tax provision or credit is the tax
payable or refundable for the period plus or minus the change during the period
in deferred tax assets and liabilities.
4. ACCOUNTS RECEIVABLE
Accounts receivable as of March 31, 1999 and 1998 were comprised of:
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
--------------------- --------------------
<S> <C> <C>
Media Contacts, S.A. $ -- 5,652
Human Mark, S.L. 2,697 --
--------------------- --------------------
$ 2,697 5,652
--------------------- --------------------
--------------------- --------------------
</TABLE>
5. EQUIPMENT AND OTHER FIXED ASSETS
Equipment and other fixed assets were comprised of:
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
--------------------- ---------------------
<S> <C> <C>
Software $ 20,908 162
Furniture and fixtures 1,548 1,529
Computer equipment 1,677 1,656
Vehicles 32,258 --
--------------------- ---------------------
56,391 3,347
Accumulated depreciation (10,883) (261)
--------------------- ---------------------
Net $ 45,508 3,086
--------------------- ---------------------
--------------------- ---------------------
</TABLE>
20
<PAGE>
6. ACCOUNTS PAYABLE AND BANK LOANS
Accounts payable and bank loans as of March 31, 1999 and 1998 were comprised of:
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
------------------ -------------------
<S> <C> <C>
Suppliers $ 2,294 571
V.A.T. and other taxes payable 2,466 3,009
Obligations under bank credit facilities 2,873 11,575
------------------ -------------------
$ 7,333 15,155
------------------ -------------------
------------------ -------------------
</TABLE>
Short-term obligations under bank revolving credit loans cannot exceed $12,500
and bear interest at 8.5%.
7. DUE TO SHAREHOLDERS
The balance of $22,714 due to shareholders at March 31, 1999 arose from payments
made by the shareholders on behalf of the Company. The balance is non-interest
bearing and due on demand.
8. INCOME TAXES
At March 31, 1999, the Company had net operating loss carryforwards available
for income tax reporting purposes of approximately $30,900 expiring in 2008
through 2009 which, upon recognition, based on current tax regulations would
generate tax benefits of approximately $9,300. There were no other material
temporary differences. Therefore, the Company had deferred tax assets of
approximately $9,300 at March 31, 1999 related to net operating loss
carryforwards. The Company has fully provided for these assets through a
valuation allowance due to uncertainties surrounding their realization.
The Company had a current income tax provision of $0 and $455 for the three
months ended March 31, 1999 and 1998, respectively. The reconciliation of the
effective income tax rate to the statutory rate is as follows:
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
March 31, 1999 March 31, 1998
--------------------- -------------------
<S> <C> <C>
Statutory income tax rate 30% 30%
Effect of valuation allowance (30%) --
--------------------- -------------------
Effective income tax rate 0 30%
--------------------- --------------------
--------------------- --------------------
</TABLE>
The Company is open to tax inspection for the period since it was incorporated.
21
<PAGE>
9. CAPITAL STOCK
Capital stock is comprised of 7,000 and 500 shares as of March 31, 1999 and
1998, respectively, and owned as follows:
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
------------------------------------ ----------------------------------------
Number Amount Number Amount
------------ ------------------- ------------ ---------------------
<S> <C> <C> <C> <C>
Salvador Porte Llinas 5,600 $ 36,672 $ --
Eduardo Kawas Pino 1,400 9,168 --
Roberto E. Ortiz de Zeballos -- 400 2,685
Juan Rafael Fernandez Calero -- 100 671
------------ -------------- ------------ ------------------
7,000 $ 45,840 500 $ 3,356
------------ -------------- ------------ ------------------
------------ -------------- ------------ ------------------
</TABLE>
On February 4, 1998, Roberto E. Ortiz de Zeballos sold his shares to Salvador
Porte Llinas and on June 4, 1998, Juan Rafael Fernandez Calero sold his shares
to Salvador Porte Llinas.
On June 8, 1998, an additional 6,500 shares of common stock have been issued at
1,000 pesetas par value fully subscribed by Salvador Porte Llinas and on August
25, 1998, Salvador Porte Llinas sold 1,400 shares to Eduardo Kawas Pino.
10. FINANCIAL INSTRUMENTS
CONCENTRATION OF CREDIT AND OTHER RISKS
Financial instruments that potentially subject the Company to concentration of
credit risk consist principally of cash investments and trade accounts
receivable. The Group maintains cash with major, high quality financial
institutions located in Spain.
22
<PAGE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating its
fair value disclosure for financial instruments.
Cash: The carrying amount of cash reported by the Company approximates their
fair value.
Accounts receivable and payable: The carrying amounts of accounts receivable and
payable approximate their fair value.
Short-term investments: The carrying amount of short-term investments reported
by the Company approximates its fair value.
11. SUBSEQUENT EVENT
On May 26, 1999, StarMedia Network, Inc. issued 1,133,334 shares of common stock
to acquire all of the issued and outstanding shares of capital stock of the
Company.
23
<PAGE>
(b) PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
STARMEDIA NETWORK, INC.
PRO FORMA BALANCE SHEET
MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
INITIAL
STARMEDIA STRATEGIC PUBLIC WASS NET KD SISTEMAS PRO FORMA
ASSETS HISTORICAL INVESTMENT OFFERING HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED
----------- ----------- ---------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $40,588,000 $41,000,000 $111,034,000 $ 248,000 $ (5,250,000) (c) $187,620,000
Accounts receivable, net 973,000 88,000 1,061,000
Other current
assets 2,241,000 3,000 2,244,000
----------------------------------------------------------------------------------------------
Total current assets 43,802,000 41,000,000 111,034,000 3,000 336,000 (5,250,000) 190,925,000
Fixed assets, net 7,308,000 46,000 92,000 7,446,000
Intangible assets, net 492,000 492,000
Goodwill, net 920,000 5,764,000 (c) 6,684,000
Other assets 1,367,000 (811,000) 556,000
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
$53,889,000 $41,000,000 $110,223,000 $ 49,000 $428,000 $514,000 $206,103,000
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
LIABILITIES
Current liabilities:
Accounts payable $ 3,732,000 $ $ $ 5,000 $ 20,000 $ $ 3,757,000
Accrued liabilities 6,845,000 (575,000) 23,000 32,000 250,000 (a) 6,575,000
Loan payable, current
portion 1,085,000 3,000 1,088,000
Capital lease obligations,
current portion 166,000 166,000
Deferred payment for
acquisition 890,000 (c) 890,000
Deferred revenue 591,000 591,000
----------------------------------------------------------------------------------------------
Total current liabilities 12,419,000 -- (575,000) 31,000 52,000 1,140,000 13,067,000
Deferred rent, other long term
liabilities 126,000 126,000
Loan payable, long term 2,541,000 2,541,000
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Preferred stock, authorized
60,000,000 shares: Series A
Redeemable Convertible
Preferred Stock, $.001 par
value, 7,330,000 shares
authorized, 7,330,000 shares
issued and outstanding stated
at liquidation value, net of
related expenses 4,311,000 (4,311,000) -
Series B Redeemable Convertible
Preferred Stock, $.001 par
value, 8,000,000 shares
authorized, 8,000,000 shares
issued and outstanding stated
at liquidation value, net of
related expenses 13,246,000 (13,246,000) -
Series C Redeemable Convertible
Preferred Stock, $.001 par
value, 16,666,667 shares
authorized, 16,666,667 shares
issued and outstanding stated
at liquidation value, net of
related expenses 81,478,000 (81,478,000) -
Stockholders' (deficit) equity
Common stock, $.001 par value,
100,000,000 shares authorized,
10,427,000 shares issued and
outstanding at March 31, 1999 10,000 4,000 40,000 46,000 103,000 (149,000)(b),(c) 54,000
Additional paid-in
capital 24,185,000 40,996,000 209,793,000 51,000 819,000 (a),(b) 275,844,000
Deferred compensation (11,854,000) (11,854,000)
Other comprehensive
(loss) income (218,000) 3,000 (165,000) 165,000 (c) (215,000)
Accumulated (deficit)
earnings (72,355,000) (82,000) 438,000 (1,461,000)(a),(c) (73,460,000)
------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' (DEFICIT)
EQUITY (60,232,000) 41,000,000 209,833,000 18,000 376,000 (626,000) 190,369,000
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $53,889,000 $41,000,000 $110,223,000 $49,000 $428,000 $514,000 $206,103,000
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
STARMEDIA NETWORK, INC.
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION> KD
STARMEDIA WASS NET SISTEMAS PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED
---------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 5,329,000 $ 21,000 $1,083,000 $ (103,000) (a), (c ) $6,330,000
Operating expenses:
Product and technology development 6,816,000 84,000 273,000 3,000 (b), (d) 7,176,000
(a), (b),
Sales and marketing 29,274,000 404,000 (335,000) (c), (d) 29,343,000
General and administrative 4,600,000 220,000 (b), (d) 4,820,000
Depreciation and amortization 774,000 7,000 1,930,000 (d), (e) 2,711,000
Stock-based compensation expense 10,421,000 10,421,000
------------------------------------------------------- --------------
Total operating
expenses 51,885,000 91,000 677,000 1,818,000 54,471,000
------------------------------------------------------- --------------
Net (loss) income from operations (46,556,000) (70,000) 406,000 (1,921,000) (48,141,000)
Interest income (expense),
net 670,000 (2,000) 17,000 685,000
------------------------------------------------------- --------------
Net (loss) income before provision for
income taxes (45,886,000) (72,000) 423,000 (1,921,000) (47,456,000)
Provision for income taxes (83,000) (83,000)
------------------------------------------------------- -------------
Net (loss)
income $(45,886,000) $(72,000) $ 340,000 $(1,921,000) (47,539,000)
------------------------------------------------------- --------------
------------------------------------------------------- --------------
Pro forma basic and diluted net loss per
common share (f) $(1.09) $(1.11)
------------------------------------------------------- --------------
------------------------------------------------------- --------------
Number of shares used in computing basic
and diluted pro forma net loss per share (f) 42,198,667 42,873,566
------------------------------------------------------- --------------
------------------------------------------------------- --------------
</TABLE>
26
<PAGE>
STARMEDIA NETWORK, INC.
PRO FORMA STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 29 (DATE OF
YEAR ENDED INCEPTION) TO YEAR ENDED
DECEMBER, 31 DECEMBER 31, DECEMBER 31,
1997 1997 1997
STARMEDIA WASS NET PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED
------------ ----------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues $460,000 $12,000 $472,000
Operating expenses:
Product and technology development 1,229,000 8,000 (4,000) (b) 1,233,000
Sales and marketing 2,108,000 2,000 (b) 2,110,000
General and administrative 648,000 2,000 (b) 650,000
Depreciation and amortization 38,000 38,000
----------------------------------------------------- ----------------
Total operating
expenses 4,023,000 8,000 -- 4,031,000
----------------------------------------------------- ----------------
Net (loss) income from
operations (3,563,000) 4,000 -- (3,559,000)
Interest income,
net 35,000 35,000
----------------------------------------------------- ----------------
Net (loss) income before
provision for income taxes (3,528,000) 4,000 (3,524,000)
----------------------------------------------------- ----------------
Provision for
income taxes -- (1,000) (1,000)
----------------------------------------------------- ----------------
Net (loss) income $ (3,528,000) $3,000 -- $ (3,525,000)
----------------------------------------------------- ----------------
----------------------------------------------------- ----------------
Pro forma basic and diluted net loss per
common share (f) $ (0.08) $(0.08)
----------------------------------------------------- ----------------
----------------------------------------------------- ----------------
Number of shares used in computing basic and
diluted pro forma
net loss per share (f)
42,008,667 42,036,169
----------------------------------------------------- ----------------
----------------------------------------------------- ----------------
</TABLE>
27
<PAGE>
STARMEDIA NETWORK, INC.
PRO FORMA STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
KD
STARMEDIA WASS NET SISTEMAS PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED
---------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $1,541,000 $12,000 $224,000 $(41,000) (a),(c) $1,736,000
Operating expenses:
Product and technology development 3,562,000 21,000 58,000 8,000 (b), (d) 3,649,000
(a), (b),
Sales and marketing 9,657,000 106,000 (96,000) (c), (d) 9,667,000
General and administrative 2,410,000 46,000 (b), (d) 2,456,000
Depreciation and amortization 467,000 4,000 481,000 (d), (e) 952,000
Stock-based compensation expense 1,417,000 1,417,000
------------------------------------------------------- ----------
Total operating
expenses 17,513,000 25,000 164,000 439,000 18,141,000
------------------------------------------------------- ----------
Net (loss) income from operations (15,972,000) (13,000) 60,000 (480,000) (16,405,000)
Interest
income, net 421,000 11,000 432,000
------------------------------------------------------- -----------
Net (loss) income before provision
for income taxes (15,551,000) (13,000) 71,000 (480,000) (15,973,000)
Provision for income taxes (35,000) (35,000)
------------------------------------------------------- ------------
Net (loss)
income $ (15,551,000) $(13,000) $36,000 $(480,000) $(16,008,000)
------------------------------------------------------- ------------
------------------------------------------------------- ------------
Pro forma basic and diluted net
loss per common share (f) $ (0.37) $ (0.37)
------------------------------------------------------- ------------
------------------------------------------------------- ------------
Number of shares used in computing basic
and diluted pro forma
net loss per share (f) 42,406,167 43,539,501
------------------------------------------------------- ------------
------------------------------------------------------- ------------
</TABLE>
28
<PAGE>
STARMEDIA NETWORK, INC.
PRO FORMA STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
STARMEDIA WASS NET PRO FORMA
HISTORICAL HISTORICAL CONSOLIDATED
---------- ---------- ------------
<S> <C> <C> <C>
Revenues $256,000 $5,000 $261,000
Operating expenses:
Product and technology development 794,000 3,000 797,000
Sales and marketing 1,816,000 1,816,000
General and administrative 450,000 450,000
Depreciation and amortization 79,000 79,000
Stock-based compensation expense 2,000 2,000
--------------------------------- -----------------
Total operating expenses 3,141,000 3,000 3,144,000
--------------------------------- -----------------
Net (loss) income from operations (2,885,000) 2,000 (2,883,000)
Interest income (expense), net 28,000 (1,000) 27,000
--------------------------------- -----------------
Net (loss) income $ (2,857,000) $1,000 $ (2,856,000)
--------------------------------- -----------------
--------------------------------- -----------------
Pro forma basic and diluted net loss per common share (f) $(0.07) $(0.07)
--------------------------------- -----------------
--------------------------------- -----------------
Number of shares used in computing basic and diluted pro
forma net loss per share (f)
42,008,667 42,089,619
--------------------------------- -----------------
--------------------------------- -----------------
</TABLE>
29
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
For purposes of determining the pro forma effects of the Wass Net Merger and the
KD Acquisition on the balance sheet at March 31, 1999, the following Pro Forma
adjustments have been made:
(a) To record $1,023,000 in transaction costs related to the Wass Net Merger
of which $773,000 will be paid by former Wass Net shareholders.
(b) To adjust Wass Net historical equity to the equivalent share amount of the
surviving business.
(c) Goodwill related to the KD Acquisition was calculated as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash consideration paid $5,000,000
Expenses of acquisition 250,000
Note payable 890,000
----------
Total Consideration 6,140,000
Fair value of net assets acquired 376,000
----------
Goodwill $5,764,000
----------
----------
</TABLE>
For purposes of determining the pro forma effects of the Wass Net Merger on
the statements of operations for the years ended December 31, 1998 and 1997
and the three months ended March, 31, 1999 and 1998, the following pro forma
adjustments have been made:
<TABLE>
<CAPTION>
Year ended Three months ended
December 31, 1998 March 31, 1999
----------------- ------------------
<S> <C> <C>
(a) Revenues $(3,000) $(5,000)
Sales and marketing (3,000) (5,000)
--------- --------
Net (loss) income
from operations -- --
--------- --------
--------- --------
</TABLE>
To eliminate the inter-company revenue of Wass Net earned from the Company.
<TABLE>
<CAPTION>
Year ended Year ended Three months ended
December 31, 1998 December 31, 1997 March 31, 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
(b) Product and technology
development $(75,000) $(4,000) $(16,000)
Sales and marketing 10,000 2,000 8,000
General and
administrative 65,000 2,000 8,000
--------- -------- ---------
Net (loss) income
from operations -- -- --
--------- -------- ---------
--------- -------- ---------
</TABLE>
30
<PAGE>
To reclassify Wass Net historical operating expenses to conform to StarMedia
historical presentation.
For purposes of determining the pro forma effects of the KD Acquisition on the
statement of operations for the three months ended March 31, 1999 and for the
year ended December 31, 1998, the following pro forma adjustments have been
made:
<TABLE>
<CAPTION>
Year ended Three months ended
December 31, 1998 March 31, 1999
----------------- ------------------
<S> <C> <C>
(c) Revenues $(100,000) $(36,000)
Sales and marketing (100,000) (36,000)
---------- ---------
Net (loss) income
from operations -- --
---------- ---------
---------- ---------
</TABLE>
To eliminate the revenue of KD Sistemas earned from the Company.
<TABLE>
<CAPTION>
Year ended Three months ended
December 31, 1998 March 31, 1999
----------------- ---------------
<S> <C> <C>
(d) Product and technology
development $78,000 $24,000
Sales and marketing (242,000) (63,000)
General and
administrative 155,000 38,000
Depreciation 9,000 1,000
--------- --------
Net (loss) income
from operations -- --
--------- --------
--------- --------
</TABLE>
To reclassify KD Sistemas historical operating expenses to conform to StarMedia
historical presentation.
<TABLE>
<CAPTION>
Year ended Three months ended
December 31, 1998 March 31, 1999
----------------- ------------------
<S> <C> <C>
(e) Amortization of
Goodwill $1,921,000 $480,000
---------- --------
---------- --------
</TABLE>
Amortization expense of the goodwill over 3 years on a straight-line basis.
In computing pro forma basic and diluted net loss per common share, the
following pro forma adjustments were made:
(f) In conjunction with the Company's initial public offering, all outstanding
shares of series A, B, and C Redeemable Convertible Preferred Stock
automatically converted into Common Stock on a one for one basis. Accordingly,
the effect of the conversions has been reflected in the computation of pro forma
basic and diluted net loss per common share. Additionally, the computation of
pro forma basic and diluted net loss per common share is based on the aggregate
weighted average shares of the combined business, adjusted to equivalent shares
of the surviving business for all periods presented.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
STARMEDIA NETWORK, INC.
-----------------------------------
(Registrant)
Date: August 10, 1999 By: /s/ Steven J. Heller
----------------------------
Name: Steven J. Heller
Title: Chief Financial Officer
31
<PAGE>
Exhibit 23.1
[L A V I N I A A U D I T O R S L E T T E R H E A D]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As Independent Public Accountants we hereby consent to the inclusion of our
report dated July 23, 1999, related to the finanial statements of WASSNET, S.L.,
as of December 31, 1998 and 1997, and of our report on limited review dated
July 23, 1999 of WASSNET, S.L. as of March 31, 1999 and 1998 in this 8-K.
It should be noted that we have not performed any procedures subsequent
to the date of our report.
LAVINIA AUDITORS, S.L.
/s/ Jaume Pigem Jutglar
-------------------------
Jaume Pigem Jutglar
[SEAL]
Barcelona, Espana
August 6, 1999
