UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 6, 2000
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) (IRS Employer Identification No.)
75 VARICK STREET, NEW YORK, NY 10013
-----------------------------------------------------------
(Address of principal executive offices) (Zip code)
(212) 905-8200
-----------------------------------------------------------
(Registrant's telephone number, including area code):
29 WEST 36TH STREET, NEW YORK, NY 10018
-----------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 7. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. The following financial
statements of Adnet, S. de R.L. de C.V. ("Adnet") are filed herewith
on the pages subsequent hereto:
Interim Financial Statements of Adnet
(i) Unaudited Condensed Balance Sheets as of December 31, 1999 and
March 31, 2000;
(ii) Unaudited Condensed Statements of Operations and Comprehensive
(Loss) Income for the three months ended March 31, 1999 and
2000;
(iii) Unaudited Condensed Statements of Stockholders' Equity
(Deficiency) for the three months ended March 31, 2000;
(iv) Unaudited Condensed Statements of Cash Flows for the three
months ended March 31, 1999 and 2000; and
(v) Notes to Unaudited Condensed Financial Statements.
Audited Financial Statements of Adnet
(i) Independent Auditors' Report;
(ii) Balance Sheets as of December 31, 1999 and 1998;
(iii) Statements of Operations and Comprehensive Loss for the years
ended December 31, 1999 and 1998;
(iv) Statements of Stockholders' Deficiency for the years ended
December 31 1999 and 1998;
(v) Statements of Cash Flows for the years ended December 31, 1999
and 1998; and
(vi) Notes to Financial Statements.
(b) PRO FORMA FINANCIAL INFORMATION. The following pro forma financial
information (unaudited) filed herewith on the pages subsequent
hereto gives effect to the acquisition of Adnet by StarMedia.
(i) Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
March 31, 2000;
<PAGE>
(ii) Unaudited Pro Forma Condensed Consolidated Statements of
Operations for the year ended December 31, 1999 the three
months ended March 31, 2000; and
(iii) Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information.
(c) EXHIBITS. Attached as Exhibit 23.1 to this Current Report on Form
8-K/A is the consent of Deloitte & Touche.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: June 20, 2000 STARMEDIA NETWORK, INC.
(Registrant)
By: /s/ Justin K. Macedonia
----------------------------
Justin K. Macedonia
Senior Vice President and
General Counsel
<PAGE>
ADNET, S. DE R.L. DE C.V.
(A 51% OWNED SUBSIDIARY OF GRUPO MVS, S.A. DE C.V.)
UNAUDITED CONDENSED BALANCE SHEETS
(In U.S. Dollars)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 100,416 $ 1,052,170
Accounts receivable - net 165,123 1,118,258
Prepaid expenses 544,077 393,739
Deferred income taxes and employee
statutory profit sharing 692,138 1,472,561
-------------- --------------
Total current assets 1,501,754 4,036,728
EQUIPMENT - Net 141,089 155,201
-------------- --------------
TOTAL $ 1,642,843 $ 4,191,929
-------------- --------------
LIABILITIES AND STOCKHOLDERS'
(DEFICIENCY) EQUITY
CURRENT LIABILITIES:
Accrued expenses and taxes $ 93,335 $ 204,650
Deferred advertising revenues 1,832,597 1,893,923
Income tax payable 101,406 545,380
Employee statutory profit-sharing
payable 30,956 160,884
Due to related parties 474,918 267,159
-------------- --------------
Total current liabilities 2,533,212 3,071,996
-------------- --------------
STOCKHOLDERS' (DEFICIENCY) EQUITY:
Business interest 31,907 1,904,249
Accumulated deficit (917,987) (764,438)
Accumulated other comprehensive loss (4,289) (19,878)
-------------- --------------
Total stockholders' (deficiency)
equity (890,369) 1,119,933
-------------- --------------
TOTAL $ 1,642,843 $ 4,191,929
============== ==============
</TABLE>
See accompanying notes to unaudited condensed financial statements.
<PAGE>
ADNET, S. DE R.L. DE C.V.
(A 51% OWNED SUBSIDIARY OF GRUPO MVS, S.A. DE C.V.)
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
(LOSS) INCOME
(In U.S. Dollars)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 2000
<S> <C> <C>
REVENUES:
Advertising $ 132,812 $ 1,495,148
Other 13,986 5,916
-------------- --------------
146,798 1,501,064
-------------- --------------
COST AND EXPENSES:
Costs of services 24,316 70,782
Selling and administrative expenses 326,450 1,422,746
-------------- --------------
350,766 1,493,528
-------------- --------------
OPERATING (LOSS) INCOME: (203,968) 7,536
OTHER INCOME - Net 1,697 6,770
-------------- --------------
(LOSS) INCOME BEFORE INCOME TAXES (202,271) 14,306
INCOME TAXES:
Current expense 17,759 449,046
Deferred benefit (24,941) (588,289)
-------------- --------------
(7,182) (139,243)
-------------- --------------
NET (LOSS) INCOME (195,089) 153,549
OTHER COMPREHENSIVE LOSS - Foreign
currency translation adjustments (7,874) (15,589)
-------------- --------------
COMPREHENSIVE (LOSS) INCOME $ (202,963) $ 137,960
============== ==============
</TABLE>
See accompanying notes to unaudited condensed financial statements.
<PAGE>
ADNET, S. DE R.L. DE C.V.
(A 51% OWNED SUBSIDIARY OF GRUPO MVS, S.A. DE C.V.)
UNAUDITED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(DEFICIENCY)
THREE MONTHS ENDED MARCH 31, 2000
(In U.S. Dollars)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
BUSINESS ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
INTEREST DEFICIT LOSS (DEFICIENCY) EQUITY
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 2000 $ 31,907 $ (917,987) $ (4,289) $ (890,369)
Issuance of common stock 351,064 351,064
Cash contributions 1,417,023 1,417,023
Capitalization of due to
related party 104,255 104,255
Net income 153,549 153,549
Other comprehensive loss-
foreign currency
translation adjustment (15,589) (15,589)
------------ ------------ ------------ ------------
BALANCE, MARCH 31, 2000 $ 1,904,249 $ (764,438) $ (19,878) $ 1,119,933
============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited condensed financial statements.
<PAGE>
ADNET, S. DE R.L. DE C.V.
(A 51% OWNED SUBSIDIARY OF GRUPO MVS, S.A. DE C.V.)
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
(In U.S. Dollars)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 2000
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income $ (195,089) $ 153,549
Adjustments to reconcile net (loss) income
to net cash used in operating activities:
Depreciation 18,249 21,718
Deferred income taxes and profit-sharing (35,874) (757,636)
Provision for vacations and vacation
premium 5,532 2,257
Changes in operating assets and liabilities:
Accounts receivable - net (36,444) (939,627)
Prepaid expenses (186,035) 160,209
Accrued expenses and taxes 139,802 38,569
Deferred advertising revenues 340,504 89,453
Income tax payable (37,291) 437,167
Employee statutory profit-sharing
payable (6,549) 127,908
Due to related parties (142,081) (114,302)
-------------- -------------
Net cash used in operating activities (135,276) (780,735)
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES -
Acquisition of equipment (19,706) (32,711)
-------------- -------------
FINANCING ACTIVITIES:
Issuance of common stock -- 351,064
Cash contributions -- 1,417,023
-------------- -------------
Net cash provided by financing
activities -- 1,768,087
-------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
(11,913) (2,887)
-------------- -------------
CASH AND CASH EQUIVALENTS:
(Decrease) increase (166,895) 951,754
Beginning of period 190,576 100,416
-------------- -------------
End of period $ 23,681 $ 1,052,170
-------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the three months ended
March 31, for income taxes $ -- $ 12,502
-------------- -------------
SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING
AND FINANCING ACTIVITIES:
During the three months ended March
31, 2000, the Company capitalized
as additional paid-in capital
$104,255 of an amount due to
related party
</TABLE>
See accompanying notes to unaudited condensed financial statements.
<PAGE>
ADNET, S. DE R.L. DE C.V.
(A 51% OWNED SUBSIDIARY OF GRUPO MVS, S.A. DE C.V.)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(In U.S. Dollars)
1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND FOREIGN CURRENCY FINANCIAL
STATEMENTS
NATURE OF BUSINESS -- Adnet, S. de R.L. de C.V. (the Company) was
established on June 6, 1996 and commenced operations on August 1, 1996.
The Company is engaged in selling advertising space on the Internet to
customers throughout Mexico. For operating purposes, the Company receives
the services of internet access and advertising page design from a related
party.
On March 1, 2000, the stockholders agreed to change the Company's form of
business entity from a stock corporation with variable capital to that of
a limited liability company. The accompanying condensed financial
statements are presented as if the Company was a limited liability company
for all periods presented.
BASIS OF PRESENTATION -- The Company maintains its books and records in
Mexican pesos and prepares its primary financial statements in accordance
with accounting principles generally accepted in Mexico ("Mexican GAAP").
The accompanying condensed financial statements have been prepared in
accordance with generally accepted accounting principles in the United
States of America ("U.S. GAAP") and have been converted into U.S. dollars
as discussed below. The most significant differences between Mexican GAAP
and U.S. GAAP as they relate to the Company are (i) Mexican GAAP
recognizes the comprehensive effects of inflation on financial statements
and (ii) through December 31, 1999, Mexican GAAP recognizes deferred
income taxes and employee profit-sharing using the partial liability
method. Effective January 1, 2000, Mexican GAAP recognizes deferred income
taxes and employee profit-sharing using the full accrual method.
The unaudited condensed financial statements of the Company included
herein have been prepared in accordance with U.S. GAAP and have not been
audited. Certain information and footnote disclosures normally prepared in
accordance with U.S. GAAP have been condensed or omitted, although the
Company believes that the disclosures are adequate to make the information
not misleading. The condensed balance sheet at December 31, 1999 is
derived from the December 31, 1999 audited financial statements but does
not include all disclosures required by U.S. GAAP. These unaudited
condensed financial statements should be read in connection with the
Company's audited financial statements and notes thereto as of and for the
year ended December 31, 1999.
The unaudited condensed financial information included herein reflects all
adjustments, consisting only of normal recurring adjustments, which are
<PAGE>
necessary, in the opinion of management, for a fair presentation of the
Company's financial position and results of operations and comprehensive
(loss) income, changes in stockholders' equity (deficiency) and cash flows
for the interim periods presented. The results of operation for interim
periods are not necessarily indicative of the results to be expected for
an entire year.
FOREIGN CURRENCY FINANCIAL STATEMENTS -- The Company's functional currency
is the Mexican peso. Accordingly, the unaudited condensed financial
statements presented herein have been translated from Mexican pesos into
U.S. dollars using (i) current exchange rates for asset and liability
accounts and (ii) the weighted average exchange rate of the reporting
period for revenues and expenses. The result of translation is recorded as
a component of other comprehensive income (loss) on the statement of
operations and comprehensive loss.
The condensed financial statements should not be construed as
representation that Mexican pesos have been, could have been or may in the
future be converted into U.S. dollars at these or any other exchange
rates.
Relevant exchange rates used in the preparation of the financial
statements were as follows (Mexican pesos per one U.S. dollar):
Current exchange rate at December 31, 1999 Ps. 9.60
Current exchange rate at March 31, 2000 Ps. 9.40
Weighted average exchange rate for the three months
ended March 31, 1999 Ps. 10.05
Weighted average exchange rate for the three months
ended March 31, 2000 Ps. 9.53
2. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
<S> <C> <C>
Trade $ 70,640 $ 986,615
Trade, recoverable in goods and services 112,917 144,148
Recoverable taxes 4,453 4,548
Offices and employees 20,276 27,028
----------- -----------
208,286 1,162,339
Less - allowance for doubtful accounts (43,163) (44,081)
----------- -----------
$ 165,123 $ 1,118,258
=========== ===========
</TABLE>
As of March 31, 2000, the Company has signed customer contracts with a value of
$3,807,210. Such amount is not included in the unaudited condensed financial
statements because the Company has not rendered the service or received any
payment as of March 31, 2000.
<PAGE>
3. STOCKHOLDERS' (DEFICIENCY) EQUITY
a. Common stock consists of the following:
<TABLE>
<CAPTION>
AMOUNT
NUMBER OF BUSINESS DECEMBER 31, MARCH 31,
SHARES INTEREST 1999 2000
DECEMBER 31, MARCH 31,
1999 2000
<S> <C> <C> <C> <C>
Fixed capital 500 1 $ 6,558 $ 6,558
Variable capital 2,000 1 25,349 376,413
----------- ----------- ------------ ---------
TOTAL 2,500 2 $ 31,907 $ 382,971
=========== =========== ============ =========
</TABLE>
In 1999, common stock consists of nominative common shares, fully
subscribed and paid for, with a value of one hundred Mexican pesos for
each share. At March 31, 2000, common stock consists of two nominative
common business interests, fully subscribed and paid for.
b. At the stockholders' meeting held on March 1, 2000, the following
resolutions were adopted:
1. Increase variable capital by $351,064 (par value) through
issuance of 33,000 ordinary nominative shares in exchange for
cash received.
2. Cash contributions of $1,417,023 and the capitalization of
$104,255 of payable to related party, were made in accordance
with the requirement of a purchase and sale contract with a
third party (see Note 6).
3. It was agreed to change the Company's form of business entity
from a stock corporation with variable capital to that of a
limited liability company. As a result, the Company's bylaws
were amended and the shares representing capital stock were
converted into business interests. Therefore, the certificates
of outstanding shares were canceled.
4. It was agreed to sell the business interests representing the
Company's capital stock to a third party.
<PAGE>
4. BALANCES AND TRANSACTIONS WITH RELATED PARTIES
a. The following summarizes accounts receivable from and payable to
related parties:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
<S> <C> <C>
Payable:
(1) Frecuencia Modulada
Mexicana, S.A. de C.V. $ 345,861 $ 156,671
(1) Frecuencia Modulada
Cuernavaca, S.A. -- 243
(2) Harry Moller Publicidad,
S.A. de C.V. 116,465 25,480
(1) Videomol, S.A. de C.V. 11,260 --
(1) Stercorey Acapulco, S.A.
de C.V. -- 574
(1) MVS Multivision, S.A. de
C.V. 1,137 1,161
(1) Telerey, S.A. de C.V. 195 83,030
------------- -------------
$ 474,918 $ 267,159
============= =============
(1) Affiliate
(2) Stockholder
</TABLE>
b. Transactions with related parties were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, MARCH 31,
1999 2000
<S> <C> <C>
Advertising revenues $ 296,540 $ 40,010
Advertising services 250,752 875,984
Interest 287 1,284
Commissions 67,259 --
Other services paid 35,275 --
</TABLE>
c. Beginning January 1, 2000, the Company entered into advertising
contracts with two affiliates for a duration of ten years. The cost
and amount of these services will be determined based on a budget
each year.
<PAGE>
5. INCOME TAXES
Deferred income taxes (IT) and employee statutory profit-sharing (ESPS)
components consist of the following temporary differences:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
ASSETS (LIABILITIES)
IT ESPS IT ESPS
<S> <C> <C> <C> <C>
Current:
Deferred advertising
revenues $ 641,409 $ 183,260 $ 1,263,487 $ 360,996
Prepaid expenses (121,666) (34,762) (137,809) (40,491)
Difference between
book and tax bases of
equipment 3,931 -- 4,979 --
Provision for vacation and
vacation premium 374 107 1,215 347
Allowance for doubtful
accounts 15,107 4,316 15,428 4,409
Other reserves 48 14
---------- ---------- ------------ ----------
Total current
deferred tax assets $ 539,203 $ 152,935 $ 1,147,300 $ 325,261
========== ========== ============ ==========
</TABLE>
Employee statutory profit-sharing was determined by applying the statutory
rate of 10% to the profit-sharing base determined in accordance with the
applicable law.
6. SUBSEQUENT EVENTS
On April 6, 2000, Grupo MVS, S.A. de C.V. and Harry Moller Publicidad,
S.A. de C.V., the stockholders of the Company consummated the transactions
contemplated by a purchase and sale contract with a third party for the
business interests representing the Company's capital stock.
* * * * * *
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Adnet, S.A. de C.V.:
We have audited the accompanying balance sheets of Adnet, S.A. de C.V. (a 51%
owned subsidiary of Grupo MVS, S.A. de C.V.) as of December 31, 1999 and 1998,
and the related statements of operations and comprehensive loss, stockholders'
deficiency and cash flows for the years then ended, all expressed in U.S.
dollars. 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 auditing standards generally accepted
in Mexico, which are substantially similar to those followed in the United
States of America. 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, such financial statements present fairly, in all material
respects, the financial position of Adnet, S.A. de C.V., as of December 31, 1999
and 1998, and the results of its operations and its cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States of America.
The Company's functional currency is the Mexican peso. However, the Mexican
economy was considered highly inflationary during the year ended December 31,
1998. As a result, the 1998 financial statements have been remeasured from
Mexican pesos into U.S. dollars as if the U.S. dollar was the functional
currency using (i) current exchange rates for monetary asset and liability
accounts, (ii) historical exchange rates for nonmonetary asset and liability
accounts, (iii) historical exchange rates for revenues and expenses associated
with nonmonetary assets and liabilities and (iv) the weighted average exchange
rate of the reporting period for all other revenues and expenses. The resulting
remeasurement gain was recorded in results of operations for the year ended
December 31, 1998. Effective January 1, 1999, the Mexican economy is no longer
considered to be highly inflationary. Accordingly, the financial statements for
the year ended December 31, 1999 have been translated from Mexican pesos into
U.S. dollars using (i) current exchange rates for asset and liability accounts
and (ii) the weighted average exchange rate of the reporting period for revenues
and expenses. The result of translation is recorded as a component of other
comprehensive loss on the statement of operations and comprehensive loss.
/s/ DELOITTE & TOUCHE
Mexico, D.F., Mexico
April 7, 2000
<PAGE>
ADNET, S.A. DE C.V.
(A 51% OWNED SUBSIDIARY OF GRUPO MVS, S.A. DE C.V.)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(In U.S. Dollars)
<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 100,416 $ 190,577
Accounts receivable - net (Note 3) 165,123 255,467
Prepaid expenses 544,077 501,928
Deferred income taxes (Note 6) 692,138 278,485
--------------- ---------------
Total current assets 1,501,754 1,226,457
EQUIPMENT - Net (Note 4) 141,089 147,835
--------------- ---------------
TOTAL $ 1,642,843 $ 1,374,292
=============== ===============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accrued expenses and taxes $ 93,335 $ 94,655
Deferred advertising revenues 1,832,597 990,249
Income tax payable 101,406 54,660
Employee statutory profit-sharing payable 30,956 18,618
Due to related parties (Note 5) 474,918 661,030
--------------- ---------------
Total current liabilities 2,533,212 1,819,212
=============== ===============
STOCKHOLDERS' DEFICIENCY:
Common stock, Mexican peso 100 par value,
2,500 shares issued, authorized and
outstanding 31,907 31,907
Accumulated deficit (917,987) (476,827)
Accumulated other comprehensive loss (4,289) --
--------------- ---------------
Total stockholders' deficiency (890,369) (444,920)
--------------- ---------------
TOTAL $ 1,642,843 $ 1,374,292
=============== ===============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ADNET, S.A. DE C.V.
(A 51% OWNED SUBSIDIARY OF GRUPO MVS, S.A. DE C.V.)
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
YEARS ENDED DECEMBER 31, 1999 AND 1998
(In U.S. Dollars)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
REVENUES:
Advertising (Note 5) $ 2,414,841 $ 900,126
Other 95,598 12,379
--------------- ---------------
2,510,439 912,505
--------------- ---------------
COST AND EXPENSES (Note 5):
Costs of services 518,798 403,571
Selling and administrative expenses 2,630,723 989,645
--------------- ---------------
3,149,521 1,393,216
--------------- ---------------
OPERATING LOSS (639,082) (480,711)
--------------- ---------------
OTHER (EXPENSE) INCOME:
Interest (expense) income - net (1,038) 22,089
Remeasurement gain -- 38,509
--------------- ---------------
(1,038) 60,598
--------------- ---------------
LOSS BEFORE INCOME TAXES (640,120) (420,113)
--------------- ---------------
INCOME TAXES (Note 6):
Current expense 101,300 62,583
Deferred benefit (300,260) (153,166)
--------------- ---------------
(198,960) (90,583)
--------------- ---------------
NET LOSS (441,160) (329,530)
OTHER COMPREHENSIVE LOSS - Foreign currency
translation adjustments (4,289) --
--------------- ---------------
COMPREHENSIVE LOSS $ (445,449) $ (329,530)
=============== ===============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ADNET, S.A. DE C.V.
(A 51% OWNED SUBSIDIARY OF GRUPO MVS, S.A. DE C.V.)
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
YEARS ENDED DECEMBER 31, 1999 AND 1998
(in U.S. Dollars)
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Stock Accumulated Comprehensive Stockholders'
Shares Amount Deficit Loss Deficiency
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1998 2,500 $ 31,907 $ (147,297) $ -- $ (115,390)
Net loss (329,530) -- (329,530)
-------- --------- ----------- ----------- -----------
BALANCE, DECEMBER 31,
1998 2,500 31,907 (476,827) -- (444,920)
Net loss (441,160) (441,160)
Other comprehensive
loss foreign currency
translation adjustment (4,289) (4,289)
-------- --------- ----------- ----------- -----------
BALANCE, DECEMBER 31,
1999 2,500 $ 31,907 $ (917,987) $ (4,289) $ (890,369)
======== ========= =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ADNET, S.A. DE C.V.
(A 51% OWNED SUBSIDIARY OF GRUPO MVS, S.A. DE C.V.)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
(in U.S. Dollars)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (441,160) $ (329,530)
Adjustments to reconcile net loss to
net cash (used in) provided by
operating activities:
Depreciation 80,323 72,960
Remeasurement gain (38,509)
Deferred income taxes and statutory profit
sharing (389,972) (199,959)
Provision for vacations and vacation premium 1,069 3,705
Labor obligations 138 --
Changes in operating assets and liabilities:
Accounts receivable - net 97,874 (159,876)
Prepaid expenses (23,421) (469,663)
Accrued expenses and taxes (4,686) 23,641
Deferred advertising revenues 791,812 791,971
Income tax payable 43,952 60,096
Employee statutory profit-sharing payable 11,451 20,469
Due to related parties (195,700) 415,286
---------- ----------
Net cash provided by operating activities (28,320) 190,591
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES -
Acquisitions of equipment (67,050) (6,399)
---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 5,209 (21,749)
CASH AND CASH EQUIVALENTS:
(Decrease) increase (90,161) 162,443
Beginning of year 190,577 28,134
---------- ----------
End of year $ 100,416 $ 190,577
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ (3,459) $ --
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ADNET, S.A. DE C.V.
(A 51% OWNED SUBSIDIARY OF GRUPO MVS, S.A. DE C.V.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
(in U.S. Dollars)
1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND FOREIGN CURRENCY FINANCIAL
STATEMENTS
NATURE OF BUSINESS -- Adnet, S.A. de C.V. (the Company) was established on
June 6, 1996 and commenced operations on August 1, 1996. The Company is
engaged in selling advertising space on the Internet to customers
throughout Mexico. For operating purposes, the Company receives the
services of Internet access and advertising page design from a related
party.
On March 29, 1999, Grupo Teleradio, S.A. de C.V. (former holding company)
sold its shares in Adnet, S.A. de C.V. to its parent company Grupo MVS,
S.A. de C.V. Therefore from this date the Company became a 51% owned
subsidiary of Grupo MVS, S.A. de C.V.
BASIS OF PRESENTATION -- At December 31, 1999 and 1998, the Company's
deficit exceeds two-thirds of its common stock balance. Under Mexican law,
this condition permits the Company's stockholders, creditors and other
interested parties to force the Company into dissolution. In addition, the
Company (i) has a working capital deficiency of $1,031,458 and $592,755 at
December 31, 1999 and 1998, respectively, (ii) incurred a net loss of
$441,160 and $329,530 for the years ended December 31, 1999 and 1998,
respectively, (iii) has a history of incurring net losses and (iv) has
generated negative cash flows from operations of $28,320 for the year
ended December 31, 1999. However, management believes the Company has the
continued support of its stockholders to fund current operations and pay
obligations as they become due (See Note 7). Therefore, the financial
statements are presented assuming the Company will continue as a going
concern.
The Company maintains its books and records in Mexican pesos and prepares
its primary financial statements in accordance with accounting principles
generally accepted in Mexico ("Mexican GAAP"). The accompanying financial
statements have been prepared in accordance with generally accepted
accounting principles in the United States of America ("U.S. GAAP") and
have been converted into U.S. dollars as discussed below. The most
significant differences between Mexican GAAP and U.S. GAAP as they relate
to the Company are i) Mexican GAAP recognizes the comprehensive effects of
inflation on financial statements and ii) Mexican GAAP recognizes deferred
income taxes and employee profit-sharing using the partial liability
method.
FOREIGN CURRENCY FINANCIAL STATEMENTS -- The Company's functional currency
is the Mexican peso. However, the Mexican economy was considered highly
<PAGE>
inflationary during the year ended December 31, 1998. As a result, the
1998 financial statements have been remeasured from Mexican pesos into
U.S. dollars as if the U.S. dollar was the functional currency using (i)
current exchange rates for monetary asset and liability accounts, (ii)
historical exchange rates for nonmonetary asset and liability accounts,
(iii) historical exchange rates for revenues and expenses associated with
nonmonetary assets and liabilities and (iv) the weighted average exchange
rate of the reporting period for all other revenues and expenses. The
resulting remeasurement gain was recorded in results of operations for the
year ended December 31, 1998.
Effective January 1, 1999, the Mexican economy is no longer considered to
be highly inflationary. Accordingly, the financial statements for the year
ended December 31, 1999 have been translated from Mexican pesos into U.S.
dollars using (i) current exchange rates for asset and liability accounts
and (ii) the weighted average exchange rate of the reporting period for
revenues and expenses. The result of translation is recorded as a
component of other comprehensive income on the statement of income and
comprehensive income.
The financial statements should not be construed as representation that
Mexican pesos have been, could have been or may in the future be converted
into U.S. dollars at these or any other exchange rates.
Relevant exchange rates used in the preparation of the financial
statements were as follows (Mexican pesos per one U.S. dollar):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Current exchange rates at December 31, Ps. 9.60 Ps. 9.95
Weighted average exchange rate Ps. 9.61 Ps. 9.71
</TABLE>
2. SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies used in the preparation
of the accompanying financial statements follows:
a. CASH EQUIVALENTS - The Company considers all highly-liquid temporary
investments with original maturities of three months or less to be
cash equivalents.
b. CONCENTRATION OF CREDIT RISK - The Company conducts its business
based upon ongoing evaluations of its customers' financial condition
and generally does not require collateral. The Company does not
believe that significant risk of loss from a concentration of credit
risk exists given the number of customers that comprise its customer
base. However, a significant portion of the Company's customers are
concentrated in Mexico and the ability of Mexican customers to pay
<PAGE>
the Company's account receivable depends, in part, upon the general
condition of the Mexican economy.
c. EQUIPMENT - Equipment is stated at cost less accumulated
depreciation. Depreciation is computed by the straight-line method,
based on the estimated useful lives of the assets, as follows:
Years
Furniture and fixtures 12
Computers 3
d. DEFERRED INCOME TAX AND EMPLOYEE STATUTORY PROFIT-SHARING - The
Company recognizes deferred income tax and employee statutory
profit-sharing assets and liabilities relative to the future tax
consequences of temporary differences between the financial
statement carrying amount of assets and liabilities and their
respective income tax or employee statutory profit-sharing bases,
measured in accordance with enacted income tax and employee
statutory profit-sharing rates. Deferred income tax and statutory
profit-sharing assets are reduced by any benefits that are not
expected to be realized.
e. LABOR OBLIGATIONS - The Company does not have a formally established
pension plan. According to the Mexican federal labor law, in the
event of dismissal or death of an employee or resignation after 15
years of service, the Company must pay a seniority premium equal to
a lump sum payment of 12 days' wages for each year worked, on the
basis of the latest salary. Maximum salary is limited to double the
legal minimum wage. Seniority premium cost is recognized over the
employees' years of service.
The Company also provides severance payments, mandated by Mexican
law, to all its employees. Such benefits consist of a one-time
payment of three months' wages plus 20 days' wages for each year of
service, payable upon involuntary termination without cause.
Severance payments are charged to results when determined to be
payable.
f. ACCUMULATED OTHER COMPREHENSIVE LOSS - Accumulated other
comprehensive loss consists of foreign currency translation
adjustments at December 31, 1999.
g. REVENUE RECOGNITION - The Company's revenues are derived principally
from the sale of advertisement and are recognized ratably over the
period of time in which the advertisement is displayed, provided
that the Company has no obligations remaining at the end of period
and collection of the resulting receivable is probable. Revenue
related to the design, coordination and integration of the
customer's content is recognized ratably using the percentage of
completion method. Revenues from barter transactions are recognized
<PAGE>
during the period in which the advertisements are displayed on the
Company's websites. Barter transactions are recorded at the
estimated fair market value of the goods or services received or the
estimated fair market value of the advertisements given, whichever
is more readily determinable. No gain or loss was recognized on
these barter transactions for the years ended December 31, 1999 and
1998. Payments received from advertisers prior to displaying their
advertisements on the Company's network are recorded as unearned
revenues.
h. USE OF ESTIMATES AND ASSUMPTIONS - The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
i. RECLASSIFICATIONS - Certain 1998 amounts have been reclassified to
conform with the 1999 presentation.
3. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Trade $ 70,640 $ 146,652
Trade, recoverable in goods and services 112,917 106,370
Related parties (Note 6) -- 103
Recoverable taxes 4,453 --
Officers and employees 20,276 1,669
Other -- 673
---------- ----------
208,286 255,467
Less - allowance for doubtful accounts (43,163) --
---------- ----------
$ 165,123 $ 255,467
========== ==========
</TABLE>
<PAGE>
4. EQUIPMENT
Equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Furniture and fixtures $ 48,417 $ 31,874
Computers 308,288 246,415
--------- ---------
356,705 278,289
Accumulated depreciation (215,616) (130,454)
--------- ---------
Net $ 141,089 $ 147,835
========= =========
</TABLE>
5. BALANCES AND TRANSACTIONS WITH RELATED PARTIES
a. The following summarizes accounts receivable from and payable to
related parties:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Receivable:
(2) MVS Multivision, S.A. de C.V. $ -- $ 103
========= =========
</TABLE>
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Payable:
(2) Frecuencia Modulada Mexicana, S.A. de C.V. $ 345,861 $ 508,811
(1) Grupo MVS, S.A. de C.V. -- 94,615
(2) Harry Moller Publicidad, S.A. de C.V. 116,465 45,801
(2) Videomol, S.A. de C.V. 11,260 10,864
(2) Comband, S.A. de C.V. -- 924
(2) MVS Multivision, S.A. de C.V. 1,137 --
(2) Telerey, S.A. de C.V. 195 15
--------- ---------
$ 474,918 $ 661,030
========= =========
(1) Parent company
(2) Affiliate
</TABLE>
<PAGE>
b. Transactions with related parties were as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Advertising revenues $ 631,374 $ 449,928
Advertising services (510,823) (531,860)
Interest (3,459) 2,860
Commissions (7,284) (32,502)
Other services paid (45,073) (32,641)
</TABLE>
c. The Company receives advertising services from affiliates. The
respective contracts are of indefinite duration. Through 1998, the
services amount was determined based on a percentage over the
Company's billing. Since January 1, 1999, the services amount is
determined based on the higher of an amount based on the operating
income of the year or the price of the spots transmitted by the
affiliate.
d. The Company receives designing of advertising pages services from a
related party. Through 1998, the amount of the services was
determined based on a percentage over the Company's billing; since
January 1, 1999 the amount of the services is determined based on
the higher of an amount determined based on the operating income of
the year or the amount on the price of the service.
6. INCOME TAXES
Effective January 1, 1999, the statutory income tax rate in Mexico changed
from 34% to 35%. Under the new law, 32% (30% after 1999) of taxable income
is payable to the Mexican government no later than the due date of the
income tax return. The remaining 3% (5% after 1999) of taxable income (the
deferred payment) is payable to the Mexican government upon the payment of
dividends; consequently, such amounts are included in deferred income
taxes. The effect of this tax rate change on deferred income tax assets
and liabilities was accounted for in December 1998 when the new tax law
was enacted.
Income tax benefit for the years ended December 31, 1999 and 1998 was
comprised of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Current income tax expense $ 101,300 $ 62,583
Deferred income tax benefit (300,260) (146,978)
Effect of income tax rate change -- (6,188)
--------- ---------
Total income tax benefit $(198,960) $ (90,583)
========= =========
</TABLE>
<PAGE>
The difference between the effective income tax rate and the statutory
rates each year is a result of inflation gains and losses recorded for
Mexican tax purposes and certain permanent nondeductible items.
Deferred income taxes (IT) and employee statutory profit-sharing (ESPS)
components consist of the following temporary differences:
<TABLE>
<CAPTION>
1999 1998
ASSETS (LIABILITIES)
IT ESPS IT ESPS
<S> <C> <C> <C> <C>
Current:
Deferred advertising
revenues $ 641,409 $ 183,260 $ 336,809 $ 96,231
Prepaid expenses (121,666) (34,762) (121,478) (34,708)
Difference between book
and tax bases of
equipment 3,931 -- -- --
Provision for vacation
and vacation premium 374 107 1,260 371
Allowance for doubtful
accounts 15,107 4,316 -- --
Other 48 14 -- --
------------ ----------- ------------- -----------
Total current deferred
tax assets $ 539,203 $ 152,935 $ 216,591 $ 61,894
============ =========== ============= ===========
</TABLE>
In connection with the functional currency change on January 1, 1999 the
Company recorded an additional deferred tax asset of $23,681, which was
credited to other comprehensive loss.
Employee statutory profit-sharing was determined by applying the statutory
rate of 10% to the profit-sharing base determined in accordance with the
applicable law.
Stockholders' equity, except paid-in capital and tax retained earnings
adjusted for inflation in accordance with Mexican tax law, will be subject
to a 35% dividend tax, payable by the Company, when distributed to
stockholders. In addition, dividends paid to foreign individuals or
residents are subject to a 7.57% withholding tax if the profits come from
years prior to 1999 and 7.69% if the profits were generated after 1998.
7. SUBSEQUENT EVENTS
a. A stockholders' meeting was held on March 1, 2000, where the
following resolutions were adopted:
1. Increase variable capital by Ps. 3,300,000 through the
issuance of 33,000 ordinary nominative shares.
2. Cash contributions of Ps. 14,300,000 were made.
<PAGE>
3. It was agreed to change the Company's form of business entity
from a stock corporation with variable capital to that of a
limited liability company.
4. As a result of the change mentioned in the point 3 above, the
Company's bylaws were amended and the shares representing
capital stock were converted into business interests.
Therefore, the certificates of outstanding shares at December
31, 1999 were canceled.
5. It was agreed to sell the business interests representing the
Company's capital stock to a third party.
b. On April 6, 2000, Grupo MVS, S.A. de C.V. and Harry Moller
Publicidad, S.A. de C.V., the holding companies, consummated the
transactions contemplated by a purchase and sale contract with a
third party for the business interests representing the Company's
capital stock.
* * * * * *
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The Pro Forma Condensed Consolidated Statements of Operations for the year ended
December 31, 1999 and the three months ended March 31, 2000 assume that the
acquisition of Adnet occurred as of January 1, 1999. The Pro Forma Condensed
Consolidated Balance Sheet at March 31, 2000 assumes that the acquisition of
Adnet occurred on March 31, 2000. Accordingly, the assets acquired and
liabilities assumed have been recorded at their estimated fair values, which are
subject to further adjustment based on future events and future analysis.
The Pro Forma Condensed Consolidated Financial Statements should be read in
conjunction with the audited consolidated financial statements of StarMedia and
the related notes thereto which are included in StarMedia's Form 10-K as filed
with the Securities and Exchange Commission and the audited and unaudited
financial statements of Adnet that are filed herewith.
The Pro Forma Consolidated Financial information does not purport to present
what StarMedia's results of operations would actually have been if the Adnet
acquisition had occurred on the assumed dates, or to project StarMedia's
financial condition or results of operations for any future period.
<PAGE>
(b) PRO FORMA FINANCIAL INFORMATION
STARMEDIA NETWORK, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
<TABLE>
<CAPTION>
STARMEDIA ADNET PRO FORMA
ASSETS HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED
------ ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $230,032,000 $1,052,000 $(5,000,000)(a) $226,084,000
Accounts receivables, net 11,959,000 1,118,000 -- 13,077,000
Other current assets 5,200,000 1,867,000 -- 7,067,000
---------------------------------------------------------
Total current assets 247,191,000 4,037,000 (5,000,000) 246,228,000
Fixed assets, net 41,077,000 155,000 -- 41,232,000
Intangible assets, net 4,985,000 -- -- 4,985,000
Goodwill, net 22,475,000 -- 19,128,000 (a) 41,603,000
Other assets 30,741,000 -- -- 30,741,000
---------------------------------------------------------
$346,469,000 $4,192,000 $14,128,000 $364,789,000
=========================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 11,791,000 $ -- $ -- $ 11,791,000
Accrued expenses 30,417,000 1,178,000 250,000 (b) 31,845,000
Loan payable, current portion 1,657,000 -- -- 1,657,000
Capital lease obligations, 7,000 -- -- 7,000
current portion
Deferred revenues 1,491,000 1,894,000 -- 3,385,000
---------------------------------------------------------
Total current liabilities 45,363,000 3,072,000 250,000 48,685,000
Long-term liabilities 1,973,000 -- -- 1,973,000
Deferred rent 1,448,000 -- -- 1,448,000
Stockholders' Equity:
Preferred Stock, authorized
100,000,000 shares: Series
199A Junior Non-Voting
Convertible Preferred Stock,
$.001 par value, 2,300,000
shares authorized, 58,140
shares outstanding -- -- -- --
Common stock, $.001 par value 65,000 -- -- 65,000
Additional paid-in capital 488,615,000 1,904,000 (1,904,000)(c)
14,998,000 (a) 503,613,000
Deferred compensation (6,351,000) -- -- (6,351,000)
Other comprehensive loss (239,000) (20,000) 20,000 (c) (239,000)
Accumulated deficit (184,405,000) (764,000) 764,000 (c) (184,405,000)
---------------------------------------------------------
Total stockholders' equity 297,685,000 1,120,000 13,878,000 312,683,000
---------------------------------------------------------
Total liabilities and
stockholders' equity $346,469,000 $4,192,000 $14,128,000 $364,789,000
=========================================================
</TABLE>
<PAGE>
STARMEDIA NETWORK, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
STARMEDIA ADNET PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues $20,089,000 $2,510,000 -- $22,599,000
Operating expenses:
Product and technology development 33,192,000 519,000 -- 33,711,000
Sales and marketing 53,399,000 2,630,000 (51,000)(e) 55,978,000
General and administrative 15,318,000 -- 51,000 (e) 15,369,000
Non-recurring merger charges 1,613,000 -- -- 1,613,000
Depreciation and amortization 6,500,000 -- 3,828,000 (d) 10,328,000
Stock-based compensation expense 6,400,000 -- -- 6,400,000
--------------------------------------- ------------
Total operating expenses 116,422,000 3,149,000 3,828,000 123,399,000
--------------------------------------- ------------
Loss from operations (96,333,000) (639,000) (3,828,000) (100,800,000)
Interest income (expense), net 5,891,000 (1,000) -- 5,890,000
--------------------------------------- ------------
Net loss before for
income tax (expense) benefit (90,442,000) (640,000) (3,828,000) (94,910,000)
Income tax (expense) benefit (231,000) 199,000 -- (32,000)
--------------------------------------- ------------
Net loss (90,673,000) (441,000) (3,828,000) (94,942,000)
Preferred stock dividends and
accretion (4,266,000) -- -- (4,266,000)
--------------------------------------- ------------
Net loss available to common
stockholders $(94,939,000) $(441,000) (3,828,000) $(99,208,000)
======================================= ============
Basic and diluted net loss per
common share $(2.31) $(2.38)
======================================= ============
Number of shares used computing basic
and diluted net loss per share 41,170,602 469,577 (a) 41,640,179
======================================= ============
</TABLE>
<PAGE>
STARMEDIA NETWORK, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
STARMEDIA ADNET PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues $ 10,056,000 $1,501,000 -- $ 11,557,000
Operating expenses:
Product and technology development 15,900,000 71,000 15,971,000
Sales and marketing 18,587,000 1,422,000 (28,000)(e) 19,981,000
General and administrative 8,075,000 -- 28,000 (e) 8,103,000
Depreciation and amortization 4,544,000 -- 957,000 (d) 5,501,000
Stock-based compensation expense 1,212,000 -- -- 1,212,000
------------------------------------ -----------
Total operating expenses 48,318,000 1,493,000 957,000 50,768,000
------------------------------------ -----------
(Loss) income from operations (38,262,000) 8,000 (957,000) (39,211,000)
Interest income, net 3,143,000 7,000 -- 3,150,000
------------------------------------ -----------
Net (loss) income before income tax
benefit (35,119,000) 15,000 (957,000) (36,061,000)
Income tax benefit - 138,000 -- 138,000
------------------------------------ -----------
Net (loss) income $(35,119,000) $ 153,000 (957,000) $(35,923,000)
==================================== ============
Basic and diluted net loss per common
share $ (0.54) $ (0.55)
==================================== ============
Number of shares used computing basic
and diluted net loss per share 64,639,789 469,577 (a) 65,109,366
==================================== ============
</TABLE>
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For purposes of determining the pro forma effects of the Adnet acquisition on
the Balance Sheet as of March 31, 2000 and on the Statements of Operations for
the year ended December 31, 1999 and the three months ended March 31, 2000, the
following pro forma adjustments have been made:
(a) To reflect StarMedia's purchase of Adnet for $5 million in cash,
469,577 shares of StarMedia common stock, valued at approximately
$14,998,000 or $31.94 per share and the related goodwill.
Goodwill related to the Adnet Acquisition was calculated as follows:
Cash consideration paid $ 5,000,000
Value of common stock issued 14,998,000
Expenses of acquisition 250,000
------------
Total Consideration 20,248,000
Total value of net tangible assets acquired 1,120,000
------------
Goodwill $ 19,128,000
============
(b) To record $250,000 in transaction costs related to the Adnet
acquisition.
(c) To reflect the elimination of Adnet's stockholders' equity accounts.
(d) To reflect the increase in amortization expense resulting from the
preliminary purchase price accounting treatment of the acquisition.
Goodwill related to the Adnet acquisition is being amortized over
five years.
(e) To reclass Adnet historical operating expenses to conform to
StarMedia historical presentation.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
----------- ----------- ----
<S> <C> <C>
23.1 Consent of Deloitte & Touche 32
</TABLE>
