-----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, DP+nqj5W1aqpECm6U0pdxZ5d1DlKuzHbRz8MPIu7i4eeZY3Uoe6FmxryYkIV74C9 eiM0qCpS8v1tSCAZd4ICyA== 0001047469-99-025397.txt : 20020916 0001047469-99-025397.hdr.sgml : 20020916 19990625163900 ACCESSION NUMBER: 0001047469-99-025397 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990413 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19990625 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 SEC ACT: 1934 Act SEC FILE NUMBER: 000-31138 FILM NUMBER: 99652703 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 1 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): APRIL 13, 1999 StarMedia Network, Inc. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in its Charter) Delaware - -------------------------------------------------------------------------------- (State or Other Jurisdiction of Incorporation) 1-15015 06-1461770 - -------------------------------------- ------------------------------------- (Commission File Number) (I.R.S. Employer Identification No.) 29 WEST 36TH STREET, NEW YORK, NY 10018 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (212) 548-9600 - -------------------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) N.A. - -------------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. On April 13, 1999, StarMedia Network, Inc., a Delaware corporation, ("StarMedia" or the "Company") acquired all of the outstanding stock of KD Sistemas De Informacao Ltda. ("KD" or "KD Sistemas"), a company organized under the laws of Brazil. As a result of the acquisition, KD became a wholly-owned subsidiary of StarMedia. The acquisition was completed pursuant to the terms of a Purchase Agreement, dated as of March 14, 1999, by and among StarMedia, KD and the Stockholders of KD. KD operates a free Web-based portal that provides topical directories of Portuguese-language Web sites. Prior to the acquisition, all of the outstanding stock of KD was owned by Gustavo Viberti, Fabio G. de Oliveira, Guillermo Jose Viberti, Rothco Empreendimentos, Participacoes e Assessoria Ltda., Carlos Augusto Montenegro, Luis Paulo Montenegro and Jose Caetano Lacerda, none of whom were affiliated or associated with the Company or its affiliates prior to the acquisiton. The purchase price consisted of a cash payment of $5,000,000 at closing, $320,000 payable by March 1, 2000, $570,000 due in March 2000 and additional cash payments of up to $6,400,000, in the aggregate, due in March 2000, 2001 and 2002 upon the achievement of certain performance targets (the "Earn-Out"). Approximately $3,000,000 of the Earn-Out is contingent upon the continued employment of certain key individuals. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA CONSOLIDATED FINANCIAL INFORMATION AND EXHIBITS StarMedia hereby files this Form 8-K to file the financial statements and related pro forma consolidated financial statements required pursuant to Item 7 of Form 8-K with respect to the KD acquisition. (a) Financial Statements of Business Acquired (b) Pro Forma Consolidated Financial Information The Pro Forma Consolidated Financial Statements are based on the historical financial statements of the Company, adjusted to give effect to the following transactions: a) the sale of 3,727,272 shares of common stock at $11 per share to six strategic investors between April 30, 1999 and May 5, 1999, net of costs; b) the issuance of 8,050,000 shares of common stock in connection with the Company's initial public offering at $15 per share, less related costs, on June 1, 1999 and the conversion of 31,966,667 shares of redeemable convertible preferred stock in connection therewith; and c) the acquisition of KD on April 13, 1999. The Pro Forma Consolidated Statements of Operations for the three months ended March 31, 1999 and for the year ended December 31, 1998 assume that the KD acquisition occurred as of the first day of January 1, 1998. The Pro Forma Consolidated Balance Sheet at March 31, 1999 assumes that the three transactions noted above occurred on March 31, 1999. The Pro Forma Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements of the Company and the related notes thereto which are included in the Company's Registration Statement, as amended, dated May 25, 1999, and the Company's Form 8-K filed on June 10, 1999 (each as filed with the Securities and Exchange Commission) and the audited financial statements of KD that are filed herewith. The Pro Forma Consoldiated Financial Information does not purport to present what the Company's results of operations would actually have been if the strategic investors, initial public offering, and KD acquisition had occurred on the assumed dates, as specified above, or to project the Company's financial condition or results of operations for any future period. (c) Exhibits Exhibit Number Description 2.1 Quota Purchase Agreement, dated as of March 14, 1999, by and among StarMedia, KD and the quotaholders of KD (incorporated be reference to Exhibit 10.10 to Amendment No. 2 to the Form S-1 of StarMedia filed with the Securities and Exchange Commission on May 11, 1999, File No. 333-74659). 23.1 Consent of Arthur Andersen LLP. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED Financial Statements Together with Report of Independent Public Accountants KD Sistemas de Informacao Ltda. December 31, 1998 ARTHUR ANDERSEN S/C REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of KD Sistemas de Informacao Ltda.: (1) We have audited the accompanying balance sheets of KD SISTEMAS DE INFORMACAO LTDA. (a Brazilian corporation), translated into U.S. dollars, as of December 31, 1998, and the related translated statements of income, changes in stockholders' equity and cash flows for the year then ended. 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 audit. (2) We conducted our audit in accordance with generally accepted auditing standards in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. (3) In our opinion, the financial statements referred to in paragraph (1) present fairly, in all material respects, for the purpose described in the preceding paragraph, the financial position of KD Sistemas de Informacao Ltda., as of December 31, 1998, and the results of its operations, the changes in its stockholders' equity and its cash flows for the year then ended, in conformity with generally accepted accounting principles in the United States. /s/ Arthur Andersen S/C Rio de Janeiro, Brazil, June 10, 1999. KD SISTEMAS DE INFORMACAO LTDA. BALANCE SHEET AS OF DECEMBER 31, 1998 (Amounts expressed in U.S. dollars) A S S E T S
CURRENT ASSETS: Cash and banks 8.957 Short-term investments 258.593 Accounts receivable 191.783 Other current assets 3.723 ------- Total current assets 463.056 ------- PROPERTY, PLANT AND EQUIPMENT, net 96.127 ------- Total assets 559.183 ------- -------
The accompanying notes are an integral part of this balance sheet. KD SISTEMAS DE INFORMACAO LTDA. BALANCE SHEET AS OF DECEMBER 31, 1998 (Amounts expressed in U.S. dollars) LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES: Accounts payable 27.848 Accrued payroll and income taxes 46.391 Accrued salaries 6.246 ------- Total current liabilities 80.485 ------- STOCKHOLDERS' EQUITY: Capital stock 107.127 Other comprehensive income- Cumulative translation adjustments (35.962) Restricted retained earnings 668 Unrestricted retained earnings 406.865 ------- Total stockholders' equity 478.698 ------- Total liabilities and stockholders' equity 559.183 ------- -------
The accompanying notes are an integral part of this balance sheet. KD SISTEMAS DE INFORMACAO LTDA. STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1998 (AMOUNTS EXPRESSED IN U.S. DOLLARS) OPERATIONS REVENUES, NET OF DISCOUNTS: Sales 1,151,948 Value-added tax (69,076) ---------- Net operating revenues 1,082,872 ---------- OPERATING COSTS AND EXPENSES: Costs of services rendered (272,746) Selling, general and administrative expenses (404,320) ---------- (677,066) ---------- INCOME FROM OPERATIONS 405,806 NONOPERATING INCOME: Financial income, net 17,165 ---------- INCOME BEFORE TAXES 422,971 INCOME TAX AND SOCIAL CONTRIBUTION (82,517) ---------- NET INCOME FOR THE YEAR 340,454 ========== The accompanying notes are an integral part of this statement. KD SISTEMAS DE INFORMACAO LTDA. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1998 (AMOUNTS EXPRESSED IN U.S. DOLLARS) CAPITAL STOCK: Initial balance as of January 1 60,347 Change in the year 46,780 -------- Balance December 31 107,127 -------- PAID FOR NOT YET SUBSCRIBED: Initial balance as of January 1 46,780 Change in the year (46,780) -------- Balance December 31 - -------- OTHER COMPREHENSIVE INCOME: Cumulative translation adjustments- Initial balance as of January 1 (10,459) Change in the year (25,503) -------- Balance December 31 (35,962) -------- RESTRICTED RETAINED EARNINGS: Legal reserve 668 -------- UNRESTRICTED RETAINED EARNINGS: Balance January 1 66,411 Net income for the year 340,454 -------- Balance December 31 406,865 -------- Total stockholders' equity 478,698 ======== The accompanying notes are an integral part of these statements. KD SISTEMAS DE INFORMACAO LTDA. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998 (AMOUNTS EXPRESSED IN U.S. DOLLARS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income 340,454 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation 5,450 Cumulative translation adjustments (25,503) -------- 320,401 -------- Decrease (increase) in assets- Accounts receivable (164,632) Other (3,723) -------- (168,355) -------- Increase (decrease) in liabilities- Accounts payable 26,358 Accrued payroll and income taxes 39,220 Accrued salaries 6,246 -------- 71,824 -------- Net cash provided by operating activities 223,870 -------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (68,136) -------- Net cash used in financing activities (68,136) -------- CASH FLOWS FROM FINANCING ACTIVITIES: Changes in short-term investment (157,477) -------- Net cash used in financing activities (157,477) -------- DECREASE IN CASH AND EQUIVALENTS (1,743) CASH AND EQUIVALENTS, BEGINNING OF YEAR 10,700 -------- CASH AND EQUIVALENTS, END OF YEAR 8,957 ======== The accompanying notes are an integral part of this statement. KD SISTEMAS DE INFORMACAO LTDA. NOTES TO THE FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 (Amounts expressed in U.S. dollars) 1. BACKGROUND KD Sistemas de Informacao Ltda. was incorporated on January 2, 1996 under the laws of the Federative Republic of Brazil. Initially denominated Skynet Sistemas Ltda., the Company developed and maintains www.cade.com.br, a branded Internet on-line network ("the network") located in the World Wide Web ("the Web"). The network develops, trains and provides systems and a search engine for Internet network purposes. The Company also provides graphic arts, editing of virtual programs, publicity, consulting, and other community Internet features targeted to the Brazilian market. 2. BASIS OF PRESENTATION The Company is required to maintain its books and records in local currency (Brazilian reais) and in the Portuguese language, based on generally accepted accounting principles in Brazil. All of the Company's sales and other transactions are denominated in local currency. The Company's official financial statements as of December 31, 1998 were originally prepared in local currency and in the Portuguese language. The accompanying financial statements herein presented have been translated into U.S. dollars and adjusted to be in conformity with generally accepted accounting principles in the United States (U.S. GAAP), in accordance with the criteria set forth in Statement of Financial Accounting Standards 52 (SFAS 52). As from July 1, 1997, the Brazilian economy had ceased to be highly inflationary so the functional currency (U.S. dollars) was changed to the local currency (Brazilian reais). The accompanying financial statements stated in U.S. dollars have been translated at the official exchange rate prevailing at December 31, 1998 of R$1.2087 to US$1.00. The criteria for translating the revenue and expense accounts is the average rate of January 31, 1998 and December 31, 1998 or R$1.1626. The gain or loss resulting from this translation process is included in the Cumulative Translation Adjustments component of stockholders' equity. 3. SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies followed in the preparation and presentation of the financial statements are summarized as follows: a. Cash and banks are stated at cost. b. Short-term investments are stated at cost plus income accrued to the balance sheet date. c. Assets and liabilities to be realized or paid within 12 months following the balance sheet dates are classified as current assets and current liabilities, respectively. d. Property, plant and equipment are stated at cost of purchase or construction less accumulated depreciation. Depreciation is calculated using the straight-line method. The annual rates used take into consideration the estimated useful lives of the assets. e. Revenues, costs and expenses are recognized on the accrual basis. The Company's revenues are derived from the sale of advertisements. Advertising revenues are recognized ratably in the period in which the advertisement is displayed, provided that no significant Company obligations remain outstanding and collection of the resulting receivable is probable. f. Accrued salaries are fully accrued liabilities for future compensation to employees for vacations vested during the year. g. The Company pays the corporate income tax and social contribution on profits based on the Presumed Profit Computation. Such method consists, basically, of the calculation of the above taxes through the calculation of 32% and 12%, respectively, on the revenues of the Company. On this amount, called Presumed Profits, the income tax, at the rate of 25% plus surtax of 10%, and the social contribution, at the rate of 8%, apply. 4. SHORT-TERM INVESTMENTS Short-term investments were comprised of financial investment funds - fixed income, denominated in Brazilian reais, at the following banks: Banco Brasileiro de Descontos - BRADESCO 207,890 Lloyd's Bank 50,703 ------- 258,593 ------- -------
5. ACCOUNTS RECEIVABLE Accounts receivable were comprised of: LG Electronics de Sao Paulo Ltda. 24,952 Itanet Itamarati On Line Ltda. 31,174 Lloyd's Asset Management 19,856 Petroleo Brasileiro S.A. 13,066 Souza Cruz S.A. 13,238 Others 99,499 ------- 201,785 ------- Allowance for doubtful accounts (10,002) ------- 191,783 ------- -------
6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment were comprised of:
Annual rate of depreciation Accumulated Net (%) Cost depreciation Balance ------------ ---- ------------ ------- Computer equipment 20 90,652 (8,545) 82,107 Furniture and fixtures 10 to 20 12,643 (939) 11,704 Telephone lines - 2,316 - 2,316 ------- ------ ------ Total 105,611 (9,484) 96,127 ------- ------ ------ ------- ------ ------
7. ACCOUNTS PAYABLE Accounts payable were comprised of: Netgravity 15,293 MM Eventos 8,042 Others 4,513 ------ 27,848 ------ ------
8. ACCRUED PAYROLL AND INCOME TAXES Accrued payroll and income taxes were comprised of:
Rate (%) ----- Government Severance Indemnity Fund for Employees - FGTS 8 1,453 National Institute of Social Security - INSS 27.8 8,129 ------ Total of accrued payroll taxes 9,582 ------ Tax on gross revenue 4.8 19,362 Social contribution 0.96 2,522 Service Tax - ISS 3 7,964 Tax for Social Security Financing - COFINS 3 5,254 Employees' Profit Participation Program - PIS 0.65 1,707 ------ Total of accrued income taxes 36,809 ------ 46,391 ------ ------
9. CAPITAL STOCK Capital stock is fully paid-in and is comprised of 110,000 quotas, as follows:
Number of quotas ---------------- Gustavo Guillermo Viberti 23,760 Fabio Goncalves de Oliveira 23,760 Guillermo Jose Viberti 21,780 Carlos Augusto Saade Montenegro 9,900 Luiz Paulo Saade Montenegro 9,900 Jose Caetano Paula de Lacerda 9,900 ROTHKO - Empreendimentos Participacoes e Assessoria Ltda. 11,000 ------- 110,000 ------- -------
10. SUBSEQUENT EVENT Exchange Policy On January 13, 1999, the Brazilian Central Bank changed its exchange policy, discontinuing the so-called exchange band through which it controlled the real fluctuation margin in relation to the U.S. dollar; therefore, the exchange rate was freely negotiated at the market. As a consequence of such change, the real had devalued in relation to the U.S. dollar, from R$1.2087 per U.S. dollar at December 31, 1998 to R$1.7597 per U.S. dollar at June 10, 1999. At this moment, it is still not possible to determine if the U.S. dollar quotation will remain at this level and its impact on the Company's transactions and financial position. Change in the Controlling On April 13, 1999 the stockholders' entered into an agreement with StarMedia Network Inc., an U.S. corporation, and sold all the outstanding equity interest. * * * * * * * * * * * * Financial Statements Together with Report of Independent Public Accountants KD Sistemas de Informacao Ltda. March 31, 1999 and 1998 ARTHUR ANDERSEN S/C REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of KD Sistemas de Informacao Ltda.: (1) We have reviewed the accompanying balance sheets of KD SISTEMAS DE INFORMACAO LTDA. (a Brazilian corporation), translated into U.S. dollars, as of March 31, 1999 and 1998, and the related translated statements of income, changes in stockholders' equity and cash flows for the three-month periods then ended. These financial statements are the responsibility of the Company's management. (2) We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of person responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. (3) These translated financial statements have been prepared as the basis for application of the equity method by its stockholders and, accordingly, they translate the assets, liabilities, stockholders' equity and revenues and expenses of KD Sistemas de Informacao Ltda. for that purpose, as explained in Note 2. (4) Based on our review, we are not aware of any material modification that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles in the United States. /s/ Arthur Andersen S/C Rio de Janeiro, Brazil, June 10, 1999. KD SISTEMAS DE INFORMACAO LTDA. UNAUDITED BALANCE SHEETS AS OF MARCH 31, 1999 AND 1998 (AMOUNTS EXPRESSED IN U.S. DOLLARS) A S S E T S
1999 1998 -------- -------- CURRENT ASSETS: Cash and banks 31,804 68,099 Short-term investments 216,091 112,437 Accounts receivable 88,154 42,336 -------- -------- Total current assets 336,049 222,872 -------- -------- PROPERTY, PLANT AND EQUIPMENT, net 92,306 34,831 -------- -------- Total assets 428,355 257,703 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998 CURRENT LIABILITIES: Accounts payable 19,908 2,498 Accrued payroll and income taxes 14,563 14,065 Accrued salaries 17,604 5,461 -------- -------- Total current liabilities 52,075 22,024 -------- -------- STOCKHOLDERS' EQUITY: Capital stock 107,127 60,347 Paid for not yet subscribed - 46,780 Other comprehensive income- Cumulative translation adjustments (174,438) (14,181) Restricted retained earnings 668 668 Unrestricted retained earnings 442,923 142,065 -------- -------- Total stockholders' equity 376,280 235,679 -------- -------- Total liabilities and stockholders' equity 428,355 257,703 ======== ========
The accompanying notes are an integral part of these balance sheets. KD SISTEMAS DE INFORMACAO LTDA. UNAUDITED STATEMENTS OF INCOME FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1999 AND 1998 (Amounts expressed in U.S. dollars)
1999 1998 ------ ------ OPERATIONS REVENUES, NET OF DISCOUNTS: Sales 247.959 185.618 Value-added tax (23.511) (11.963) -------- ------- Net operating revenues 224.448 173.655 -------- ------- OPERATING COSTS AND EXPENSES: Costs of services rendered (59.077) (18.188) Selling, general and administrative expenses (105.917) (72.245) -------- ------- (164.994) (90.433) ----------- ----------- INCOME FROM OPERATIONS 59.454 83.222 NONOPERATING INCOME (EXPENSES): Financial income (expense), net 11.455 (366) -------- ------- INCOME BEFORE TAXES 70.909 82.856 INCOME TAX AND SOCIAL CONTRIBUTION (34.851) (7.202) -------- ------- NET INCOME FOR THE PERIOD 36.058 75.654 -------- ------- -------- -------
The accompanying notes are an integral part of these statements. KD SISTEMAS DE INFORMACAO LTDA. UNAUDITED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1999 AND 1998 (AMOUNTS EXPRESSED IN U.S. DOLLARS)
1999 1998 -------- -------- CAPITAL STOCK 107,127 60,347 -------- -------- PAID FOR NOT YET SUBSCRIBED - 46,780 -------- -------- OTHER COMPREHENSIVE INCOME: Cumulative translation adjustments- Initial balance as of January 1 (35,962) (10,459) Change in the period (138,476) (3,722) -------- -------- Balance March 31 (174,438) (14,181) -------- -------- RESTRICTED RETAINED EARNINGS: Legal reserve 668 668 -------- -------- UNRESTRICTED RETAINED EARNINGS: Balance January 1 406,865 66,411 Net income for the period 36,058 75,654 -------- -------- Balance March 31 442,923 142,065 -------- -------- Total stockholders' equity 376,280 235,679 ======== ========
The accompanying notes are an integral part of these statements. KD SISTEMAS DE INFORMACAO LTDA. UNAUDITED STATEMENTS OF CASH FLOWS FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1999 AND 1998 (AMOUNTS EXPRESSED IN U.S. DOLLARS)
1999 1998 -------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income 36,058 75,654 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation 1,263 2,450 Cummulative translation adjustments (138,476) (3,722) -------- ------- (101,155) 74,382 -------- ------- Decrease (increase) in assets- Accounts receivable 103,629 (15,185) Other 3,723 - -------- ------- 107,352 (15,185) -------- ------- Increase (decrease) in liabilities- Accounts payable (7,940) 1,008 Accrued payroll and income taxes (31,828) 6,894 Accrued salaries 11,358 5,461 -------- ------- (28,410) 13,363 -------- ------- Net cash provided by operating activities (22,213) 72,560 -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment 2,558 (3,840) -------- ------- Net cash provided by (used in) investing activities 2,558 (3,840) -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Changes in short-term investment 42,502 (11,321) -------- ------- Net cash provided by (used in) financing activities 42,502 (11,321) -------- ------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS 22,847 57,399 CASH AND EQUIVALENTS, BEGINNING OF QUARTER 8,957 10,700 -------- ------- CASH AND EQUIVALENTS, END OF QUARTER 31,804 68,099 ======== =======
The accompanying notes are an integral part of these statements. KD SISTEMAS DE INFORMACAO LTDA. NOTES TO THE UNAUDITED FINANCIAL STATEMENTS AS OF MARCH 31, 1999 AND 1998 (Amounts expressed in U.S. dollars) 1. BACKGROUND KD Sistemas de Informacao Ltda. was incorporated on January 2, 1996 under the laws of the Federative Republic of Brazil. Initially denominated Skynet Sistemas Ltda., the Company developed and maintains www.cade.com.br, a branded Internet on-line network ("the network") located in the World Wide Web ("the Web"). The network develops, trains and provides systems and a search engine for Internet network purposes. The Company also provides graphic arts, editing of virtual programs, publicity, consulting, and other community Internet features targeted to the Brazilian market. 2. BASIS OF PRESENTATION The Company is required to maintain its books and records in local currency (Brazilian reais) and in the Portuguese language, based on generally accepted accounting principles in Brazil. The Company's official financial statements as of March 31, 1999 and 1998 were originally prepared in local currency and in the Portuguese language. The accompanying financial statements herein presented have been translated into U.S. dollars and adjusted to be in conformity with generally accepted accounting principles in the United States (U.S. GAAP), in accordance with the criteria set forth in Statement of Financial Accounting Standards 52 (SFAS 52). As from July 1, 1997, the Brazilian economy had ceased to be highly inflationary so the functional currency (U.S. dollars) was changed to the local currency (Brazilian reais). The accompanying financial statements stated in U.S. dollars have been translated at the official exchange rate prevailing at March 31, 1999 (R$1.7220 to US$1.00) and March 31, 1998 (R$1.1374 to US$1.00). The criteria for translating the revenue and expense accounts are the average rates prevailing during the period. The gain or loss resulting from this translation process is included in the Cumulative Translation Adjustment component of stockholders' equity. The unaudited financial statements as of March 31, 1999 and 1998 include, in the opinion of the management, all adjustments (which are of a normal reviewing nature) necessary for fair presentation thereof. The results of operations for the three-month period ended March 31, 1999 are not necessarily indicative of the results for the full fiscal year ending December 31, 1999. 3. SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies followed in the preparation and presentation of the financial statements are summarized as follows: a. Cash and banks are stated at cost. b. Short-term investments are stated at cost plus income accrued to the balance sheet date. c. Assets and liabilities to be realized or paid within 12 months following the balance sheet dates are classified as current assets and current liabilities, respectively. d. Property, plant and equipment are stated at cost of purchase or construction less accumulated depreciation. Depreciation is calculated using the straight-line method. The annual rates used take into consideration the estimated useful lives of the assets. e. Revenues, costs and expenses are recognized on the accrual basis. The Company's revenues are derived from the sale of advertisements. Advertising revenues are recognized ratably in the period in which the advertisement is displayed, provided that no significant Company obligations remain outstanding and collection of the resulting receivable is probable. f. Accrued salaries are fully accrued liabilities for future compensation to employees for vacations vested during the year. g. The Company pays the corporate income tax and social contribution on profits based on the Presumed Profit Computation. Such method consists, basically, of the calculation of the above taxes through the calculation of 32% and 12%, respectively, on the revenues of the Company. On this amount, called Presumed Profits, the income tax, at the rate of 25% plus surtax of 10%, and the social contribution, at the rate of 8%, apply. 4. SHORT-TERM INVESTMENTS As of March 31, 1999 and 1998, short-term investments were comprised of financial investment fund - fixed income, denominated in Brazilian reais at Banco Brasileiro de Descontos - BRADESCO, at the total amount of US$216,091 and US$112,437, respectively. 5. ACCOUNTS RECEIVABLE Accounts receivable were comprised of:
1999 1998 ------ ------ Centrais Eletricas Brasileiras S.A. 13,141 - Itanet Itamarati On Line Ltda. 11,614 - Petroleo Brasileiro S.A. 20,014 - Souza Cruz S.A. 9,292 - Wild Tecnologies do Brasil - 4,396 STI Sao Paulo On Line - 3,681 Unisys do Brasil Ltda. - 3,077 Others 41,114 31,182 ------ ------ 95,175 42,336 Allowance for doubtful accounts (7,021) - ------ ------ 88,154 42,336 ------ ------ ------ ------
6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment were comprised of:
Annual rate of depreciation (%) 1999 1998 -------------- ---- ---- Computer equipment 20 91,973 35,754 Furniture and fixtures 10 to 20 9,454 5,561 Telephone lines - 1,626 - ------- ------ 103,053 41,315 Accumulated depreciation (10,747) (6,484) ------- ------ 92,306 34,831 ------- ------ ------- ------
7. ACCOUNTS PAYABLE Accounts payable were comprised of:
1999 1998 ---------- ---- MM Eventos 3,213 - Bradesco Saude 1,634 - RM Cine e Video Ltda. 2,613 - Fund. Parque de Alta Tecnologia de Petropolis 3,194 2,417 Others 9,254 81 ------ ----- 19,908 2,498 ------ ----- ------ -----
8. ACCRUED PAYROLL AND INCOME TAXES Accrued payroll and income taxes were comprised of:
Rate (%) 1999 1998 ---- ------ ------ Government Severance Indemnity Fund for Employees - FGTS 8 1,129 270 National Institute of Social Security - INSS 27.8 5,513 2,232 Income and Tax Withholdings Return - IRRF 9 953 ------ ------ Total of accrued payroll taxes 6,651 3,455 ------ ------ Tax on gross revenue 4.8 - 5,015 Social contribution 0.96 - 813 Service Tax - ISS 3 3,570 2,540 Tax for Social Security Financing - COFINS 3 3,570 1,692 Employees' Profit Participation Program - PIS 0.65 772 550 ------ ------ Total of accrued income taxes 7,912 10,610 ------ ------ 14,563 14,065 ------ ------ ------ ------
9. CAPITAL STOCK As of March 31, capital stock is fully paid-in and is comprised of 110,000 and 60,000 quotas, in 1999 and 1998, respectively, as follows:
1999 1998 ------ ------ Gustavo Guillermo Viberti 23,760 15,600 Fabio Goncalves de Oliveira 23,760 13,200 Guillermo Jose Viberti 21,780 13,200 Carlos Augusto Saade Montenegro 9,900 - Luiz Paulo Saade Montenegro 9,900 9,000 Jose Caetano Paula de Lacerda 9,900 4,500 ROTHKO - Empreendimentos Participacoes e Assessoria Ltda. 11,000 - Marcos Spinola Montenegro - 4,500 ------- ------ 110,000 60,000 ------- ------ ------- ------
10. RELEVANT ISSUE On January 13, 1999, the Brazilian Central Bank changed its exchange policy, discontinuing the so-called exchange band through which it controlled the real fluctuation margin in relation to the U.S. dollar; therefore, the exchange rate was freely negotiated at the market. As a consequence of such change, the real had devalued in relation to the U.S. dollar, from R$1.2087 per U.S. dollar at December 31, 1998 to R$1.7597 per U.S. dollar at June 10, 1999. At this moment, it is still not possible to determine if the U.S. dollar quotation will remain at this level and its impact on the Company's transactions and financial position. 11. SUBSEQUENT EVENT On April 13, 1999 the stockholders' entered into an agreement with StarMedia Network Inc., an U.S. corporation, and sold all the outstanding equity interest. * * * * * * * * * * * * (b) PRO FORMA CONSOLIDATED FINANCIAL INFORMATION STARMEDIA NETWORK, INC. PRO FORMA BALANCE SHEET MARCH 31, 1999 (UNAUDITED)
INITIAL STARMEDIA STRATEGIC PUBLIC KD SISTEMAS PRO FORMA HISTORICAL INVESTMENT OFFERING HISTORICAL ADJUSTMENTS CONSOLIDATED ----------- ----------- --------- ----------- ----------- ------------- ASSETS Current Assets: Cash and cash equivalents and short term investments $40,588,000 $41,000,000 $111,034,000 $248,000 $(5,250,000) $187,620,000 Accounts receivable, net 973,000 88,000 1,061,000 Other current assets 2,241,000 2,241,000 ------------------------------------------------------------------------------ Total current assets 43,802,000 41,000,000 111,034,000 336,000 (5,250,000) 190,922,000 Fixed assets, net 7,308,000 92,000 7,400,000 Intangible assets, net 492,000 492,000 Goodwill, net 920,000 5,764,000 6,684,000 Other assets 1,367,000 (811,000) 556,000 ------------------------------------------------------------------------------ $53,889,000 $41,000,000 $110,223,000 $428,000 $ 514,000 $206,054,000 ============================================================================== LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY Current liabilities: Accounts payable $ 3,732,000 $ $ $ 20,000 $ $ 3,752,000 Accrued liabilities 6,845,000 (575,000) 32,000 6,302,000 Loan payable, current portion 1,085,000 1,085,000 Capital lease obligations, current portion 166,000 166,000 Deferred payment for acquisition 890,000 890,000 Deferred revenue 591,000 591,000 ------------------------------------------------------------------------------ Total current liabilities 12,419,000 - (575,000) 52,000 890,000 12,786,000 Deferred rent, other long term liabilities 126,000 126,000 Loan payable, long term 2,541,000 2,541,000 Preferred stock, authorized 60,000,000 shares: Series A Redeemable Convertible Preferred Stock, $.001 par value, 7,330,000 shares authorized, 7,330,000 shares issued and outstanding stated at liquidation value, net of related expenses 4,311,000 (4,311,000) - Series B Redeemable Convertible Preferred Stock, $.001 par value, 8,000,000 shares authorized, 8,000,000 shares issued and outstanding stated at liquidation value, net of related expenses 13,246,000 (13,246,000) - Series C Redeemable Convertible Preferred Stock, $.001 par value, 16,666,667 shares authorized, 16,666,667 shares issued and outstanding stated at liquidation value, net of related expenses 81,478,000 (81,478,000) - Stockholders' (deficit) equity Common stock, $.001 par value, 100,000,000 shares authorized, 10,427,000 shares issued and outstanding at March 31, 1999 and 54,350,031 shares outstanding on a pro forma basis 10,000 4,000 40,000 103,000 (103,000) 54,000 Additional paid-in capital 24,185,000 40,996,000 209,793,000 274,974,000 Deferred compensation (11,854,000) (11,854,000) Other comprehensive loss (218,000) (165,000) 165,000 (218,000) Accumulated deficit (72,355,000) 438,000 (438,000) (72,355,000) ------------------------------------------------------------------------------ TOTAL STOCKHOLDERS' (DEFICIT) EQUITY (60,232,000) 41,000,000 209,833,000 376,000 (376,000) 190,601,000 ============================================================================== Total liabilities and stockholders' equity $53,889,000 $41,000,000 $110,223,000 $428,000 $ 514,000 $206,054,000 ==============================================================================
STARMEDIA NETWORK, INC. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
STARMEDIA KD SISTEMAS PRO FORMA HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED ---------- ---------- ----------- ------------- Revenues $ 1,541,000 $224,000 $(36,000)(a) $ 1,729,000 Operating expenses: Product and technology development 3,562,000 58,000 24,000 (d) 3,644,000 Sales and marketing 9,657,000 106,000 (99,000)(a),(d) 9,664,000 General and administrative 2,410,000 38,000 (d) 2,448,000 Depreciation and amortization 467,000 481,000 (b),(d) 948,000 Stock-based compensation expense 1,417,000 1,417,000 ------------------------------------------------------------------- Total operating expenses 17,513,000 164,000 444,000 18,121,000 ------------------------------------------------------------------- Net (loss) income from operations $(15,972,000) 60,000 (480,000) (16,392,000) Interest income, net 421,000 11,000 432,000 ------------------------------------------------------------------- Net (loss) income before income tax (15,551,000) 71,000 (480,000) $(15,960,000) Provision for income tax -- (35,000) (35,000) ------------------------------------------------------------------- Net (loss) income $(15,551,000) $ 36,000 $ (480,000) $(15,995,000) ------------------------------------------------------------------- ------------------------------------------------------------------- Pro forma basic and diluted net loss per common share (c) $ (0.37) $ (0.38) ------------------------------------------------------------------ ------------------------------------------------------------------ Number of shares used in computing pro forma basic and diluted net loss per share (c) 42,406,167 42,406,167 ------------------------------------------------------------------ ------------------------------------------------------------------
STARMEDIA NETWORK, INC. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 (UNAUDITED)
STARMEDIA KD SISTEMAS PRO FORMA HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED ---------- ---------- ----------- ------------ Revenues $ 5,329,000 $1,083,000 $ (100,000)(a) $ 6,312,000 Operating expenses: Product and technology development 6,816,000 273,000 78,000 (d) 7,167,000 Sales and marketing 29,274,000 404,000 (342,000)(a),(d) 29,336,000 General and administrative 4,600,000 155,000 (d) 4,755,000 Depreciation and amortization 774,000 1,930,000 (b),(d) 2,704,000 Stock-based compensation expense 10,421,000 10,421,000 --------------------------------------------------------------- Total operating expenses 51,885,000 677,000 1,821,000 54,383,000 --------------------------------------------------------------- Net (loss) income from operations (46,556,000) 406,000 (1,921,000) (48,071,000) Interest income, net 670,000 17,000 687,000 --------------------------------------------------------------- Net (loss) income before income tax (45,886,000) 423,000 (1,921,000) (47,420,000) Provision for income tax - (83,000) (83,000) --------------------------------------------------------------- Net (loss) income $(45,886,000) $ 340,000 $(1,921,000) $(47,467,000) =============================================================== Pro forma basic and diluted net loss per common share (c) $ (1.09) $ (1.12) =============================================================== Number of shares used in computing pro forma basic and diluted net loss per share (c) 42,198,667 42,198,667 ===============================================================
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For purposes of determining the pro forma effect of the KD Sistemas acquisition on the balance sheet at March 31, 1999, the goodwill is calculated as follows: Cash consideration paid $5,000,000 Deferred payments 890,000 Expenses of acquisition 250,000 ---------- Total consideration 6,140,000 Fair value of net tangible assets acquired 376,000 ---------- Goodwill $5,764,000 ========== For purposes of determining the pro forma effects of the KD Acquisition on the statement of operations for the year ended December 31, 1998 and the three months ended March, 31, 1999, the following pro forma adjustments have been made:
Year ended Three months ended December 31, 1998 March 31, 1999 ----------------- -------------- (a) Revenues $(100,000) $(36,000) Sales and marketing (100,000) (36,000) --------- -------- Net (loss) income from operations - - ========= ======== To eliminate the inter-company revenue of KD Sistemas earned from the Company. (b) Amortization of goodwill $1,921,000 $480,000 ========== ======== Amortization expense of the goodwill over 3 years. (c) In conjunction with the Company's initial public offering, all outstanding shares of Series A, B and C Redeemable Convertible Preferred Stock automatically converted into Common Stock on a one for one basis. Accordingly, the effect of the conversions have been reflected in the computation of pro forma basic and diluted net loss per common share. (d) Product and technology development $ 78,000 $ 24,000 Sales and marketing (242,000) (63,000) General and amortization 155,000 38,000 Depreciation and amortization 9,000 1,000 --------- -------- - - ========= ========
To reclass KD Sistemas historical operating expenses to conform to StarMedia historical presentation. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. STARMEDIA NETWORK, INC. ----------------------------------- (Registrant) By: /s/ Steven J. Heller ---------------------------- Name: Steven J. Heller Title: Chief Financial Officer Dated: June 25, 1999 EX-23.1 2 CONSENT OF ARTHUR ANDERSEN ARTHUR ANDERSEN S/C CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As Independent Public Accountants, we hereby consent to the inclusion of our report dated June 10, 1999, related to the financial statements of KD Sistemas de Informacao Ltda. as of December 31, 1998, and of our report on limited review dated June 10, 1999 of KD Sistemas de Informacao Ltda. as of March 31, 1999 and 1998 in this 8-K. It should be noted that we have not performed any audit procedures subsequent to the date of our report. /s/ Arthur Andersen S/C Rio de Janeiro, Brazil June 25, 1999. -----END PRIVACY-ENHANCED MESSAGE-----