-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OG5kNAikU60GYLdjy3wa8ivX/u6aM/eSemp2ZoyhET62bJf6gMPZePzFNec/qDle y5NEzchUIDtTxbc0MCUgZQ== 0000950155-00-000073.txt : 20020916 0000950155-00-000073.hdr.sgml : 20020916 20000620162100 ACCESSION NUMBER: 0000950155-00-000073 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000406 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20000620 DATE AS OF CHANGE: 20020916 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STARMEDIA NETWORK INC CENTRAL INDEX KEY: 0001057334 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 061461770 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-31138 FILM NUMBER: 00657801 BUSINESS ADDRESS: STREET 1: 29 WEST 36TH STREET 5TH FL CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: 2125489600 MAIL ADDRESS: STREET 1: 29 WEST 36TH STREET FIFTH FLOOR CITY: NEW YORK STATE: NY ZIP: 10018 8-K/A 1 0001.txt FORM 8-K/A 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) 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; (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. 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 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)
DECEMBER 31, MARCH 31, 1999 2000 ASSETS 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 ============== ==============
See accompanying notes to unaudited condensed financial statements. 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)
THREE MONTHS ENDED MARCH 31, 1999 2000 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 ============== ==============
See accompanying notes to unaudited condensed financial statements. 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)
ACCUMULATED OTHER TOTAL BUSINESS ACCUMULATED COMPREHENSIVE STOCKHOLDERS' INTEREST DEFICIT LOSS (DEFICIENCY) EQUITY 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 ============ ============ ============ ============
See accompanying notes to unaudited condensed financial statements. 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)
THREE MONTHS ENDED MARCH 31, 1999 2000 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
See accompanying notes to unaudited condensed financial statements. 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 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
DECEMBER 31, MARCH 31, 1999 2000 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 =========== ===========
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. 3. STOCKHOLDERS' (DEFICIENCY) EQUITY a. Common stock consists of the following:
AMOUNT NUMBER OF BUSINESS DECEMBER 31, MARCH 31, SHARES INTEREST 1999 2000 DECEMBER 31, MARCH 31, 1999 2000 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 =========== =========== ============ =========
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. 4. BALANCES AND TRANSACTIONS WITH RELATED PARTIES a. The following summarizes accounts receivable from and payable to related parties:
DECEMBER 31, MARCH 31, 1999 2000 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
b. Transactions with related parties were as follows:
THREE MONTHS ENDED MARCH 31, MARCH 31, 1999 2000 Advertising revenues $ 296,540 $ 40,010 Advertising services 250,752 875,984 Interest 287 1,284 Commissions 67,259 -- Other services paid 35,275 --
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. 5. INCOME TAXES Deferred income taxes (IT) and employee statutory profit-sharing (ESPS) components consist of the following temporary differences:
DECEMBER 31, MARCH 31, 1999 2000 ASSETS (LIABILITIES) IT ESPS IT ESPS 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 ========== ========== ============ ==========
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. * * * * * * 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 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)
ASSETS 1999 1998 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 =============== ===============
See accompanying notes to financial statements. 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)
1999 1998 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) =============== ===============
See accompanying notes to financial statements. 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)
Accumulated Other Total Common Stock Accumulated Comprehensive Stockholders' Shares Amount Deficit Loss Deficiency 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) ======== ========= =========== =========== ===========
See accompanying notes to financial statements. 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)
1999 1998 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) $ -- ========== ==========
See accompanying notes to financial statements. 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 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):
1999 1998 Current exchange rates at December 31, Ps. 9.60 Ps. 9.95 Weighted average exchange rate Ps. 9.61 Ps. 9.71
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 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 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:
1999 1998 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 ========== ==========
4. EQUIPMENT Equipment consists of the following at December 31:
1999 1998 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 ========= =========
5. BALANCES AND TRANSACTIONS WITH RELATED PARTIES a. The following summarizes accounts receivable from and payable to related parties:
1999 1998 Receivable: (2) MVS Multivision, S.A. de C.V. $ -- $ 103 ========= =========
1999 1998 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
b. Transactions with related parties were as follows:
1999 1998 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)
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:
1999 1998 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) ========= =========
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:
1999 1998 ASSETS (LIABILITIES) IT ESPS IT ESPS 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 ============ =========== ============= ===========
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. 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. * * * * * * 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. (b) PRO FORMA FINANCIAL INFORMATION STARMEDIA NETWORK, INC. PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET MARCH 31, 2000
STARMEDIA ADNET PRO FORMA ASSETS HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED ------ ---------- ---------- ----------- ------------ 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 =========================================================
STARMEDIA NETWORK, INC. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1999
STARMEDIA ADNET PRO FORMA HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED ---------- ---------- ----------- ------------ 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 ======================================= ============
STARMEDIA NETWORK, INC. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2000
STARMEDIA ADNET PRO FORMA HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED ---------- ---------- ----------- ------------ 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 ==================================== ============
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. EXHIBIT INDEX
Exhibit No. Description Page ----------- ----------- ---- 23.1 Consent of Deloitte & Touche 32
EX-23.1 2 0002.txt D&T'S CONSENT INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 333-79255 of Starmedia Network, Inc. on Form S-8 of our report dated April 7, 2000 appearing in this Current Report on Form 8-K/A of Starmedia Network, Inc. under the Securities Exchange Act of 1934. /s/DELOITTE & TOUCHE Mexico, D.F., Mexico June 19, 2000 -----END PRIVACY-ENHANCED MESSAGE-----