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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NUMBER 1-5015

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STARMEDIA NETWORK, INC.

(Exact Name of Registrant as Specified in its Charter)

DELAWARE 06-1461770
(State of Incorporation) (I.R.S. Employer Identification No.)
75 VARICK STREET
NEW YORK, NEW YORK 10013
(212) 905-8200
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock $.001 par value

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes / / No /X/

The aggregate market value of voting stock held by non-affiliates of the
registrant as of December 31, 2000 was $79,354,230 (based on the last reported
sale price on the Nasdaq National Market on December 29, 2000). The number of
shares of the registrant's common stock outstanding as of December 31, 2000 was
66,927,883.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's proxy statement for the 2001 Annual Meeting of
Stockholders, which is to be filed subsequent to the date hereof, are
incorporated by reference into Part III.

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STARMEDIA NETWORK, INC.
2000 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS

PART I.................................................................. 3

ITEM 1. Business.................................................... 3

ITEM 2. Properties.................................................. 21

ITEM 3. Legal Proceedings........................................... 21

ITEM 4. Submission of Matters to a Vote of Security Holders......... 21

PART II................................................................. 22

ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 22

ITEM 6. Selected Consolidated Financial Data........................ 22

ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 24

ITEM 7A. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 31

ITEM 8. Financial Statements and Supplementary Data................. 31

ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 31

PART III................................................................ 31

ITEM 10. Directors and Executive Officers of the Registrant.......... 31

ITEM 11. Executive Compensation...................................... 32

ITEM 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 32

ITEM 13. Certain Relationships and Related Transactions.............. 32

PART IV................................................................. 32

ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 32

THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT
EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT STARMEDIA AND OUR
INDUSTRY. THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES.
STARMEDIA'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, AS MORE FULLY
DESCRIBED IN THIS SECTION AND ELSEWHERE IN THIS REPORT. STARMEDIA UNDERTAKES NO
OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS FOR ANY REASON,
EVEN IF NEW INFORMATION BECOMES AVAILABLE OR OTHER EVENTS OCCUR IN THE FUTURE.

PART I

ITEM 1. BUSINESS

OVERVIEW

StarMedia Network, Inc. was incorporated in Delaware in March 1996. We
commenced operations in September 1996 and launched the StarMedia network in
December 1996. In May 1999, we completed the initial public offering of our
common stock and in October 1999 we completed a follow-on public offering of our
common stock. Our principal executive offices are located at 75 Varick Street,
New York, New York 10013 and our telephone number is (212) 905-8200.

StarMedia Network is the leading Internet media company targeting Spanish-
and Portuguese-speaking markets worldwide. Our network consists of 14 branded
Internet properties:

- STARMEDIA (www.starmedia.com), the leading portal for Spanish and
Portuguese speakers;

- LATINRED (www.latinred.net), one of the largest Spanish language online
communities;

- CADE? (www.cade.com.br), a premiere online directory in Brazil;

- ZEEK! (www.zeek.com.br), a major online directory of Portuguese language
sites;

- ADNET (www.adnet.com.mx), Mexico's largest Web directory;

- OPENCHILE (www.openchile.cl), a comprehensive Chilean directory and guide;

- BATEPAPO (www.batepapo.com.br), one of Brazil's leading chat portals;

- GUIA SP (www.guiasp.com.br), GUIA RJ (www.guiarj.com.br) and GUIA NACIDADE
(www.nacidade.com), Brazil's largest metropolitan Web directories;

- PANORAMAS (www.panoramas.cl), the leading Chilean guide for Santiago;

- PAISAS.COM (www.paisas.com) and YOINVITO (www.yoinvito.com), leading
online Colombian city guides;

- PERISCOPIO (www.periscopio.com), a powerful information portal for Spanish
speakers worldwide.

It also operates StarMedia Mobile, the Company's wireless division.

Through these properties, we offer our users a variety of in-language
interest-specific areas or channels, extensive Web-based community features,
sophisticated search capabilities and online shopping. Our content covers a
broad array of topics of interest to Spanish- and Portuguese-speaking audiences,
including local and regional news, business and sports. We promote user affinity
to the StarMedia community by providing tools and services such as Spanish and
Portuguese language e-mail,

chat rooms, instant messaging and personal homepages. We provide our content and
community features to our users free of charge.

At a time when content on the Internet is overwhelmingly in English, we
offer our users an in-language community experience, combined with a broad array
of Spanish and Portuguese content tailored for regional dialects and local
cultural norms. As a result, we provide advertisers and merchants targeted
access to Spanish- and Portuguese-speaking Internet users, an audience with a
highly desirable demographic profile.

Despite the rapid growth of non-English speaking Internet users worldwide,
approximately 80 to 85% of the content on the Internet remains in English. We
believe that an increasing number of Spanish- and Portuguese-speaking Internet
users are seeking a full-service Internet offering in their local language that
provides them with:

- a social interactive experience across the entire Spanish- and
Portuguese-speaking world;

- a variety of in-depth and focused local content;

- a broad array of compelling content at the regional and international
level;

- sophisticated Internet applications and tools like e-mail, chat, instant
messaging, bulletin boards, personal homepages and search capabilities;
and

- the ability to easily and securely buy goods and services online.

StarMedia was among the first sites tailored specifically to the interests
and needs of Spanish and Portuguese speakers. In so doing, we were also among
the first to attract a broad user base and to provide advertisers with an
attractive platform to effectively reach this highly desirable Spanish-and
Portuguese-speaking Internet user base.

THE STARMEDIA SOLUTION

We believe that our success to date is attributable to the following key
factors:

FOCUS ON SPANISH- AND PORTUGUESE-SPEAKING MARKETS. We focus on Spanish- and
Portuguese-speaking markets, through the development of a product infrastructure
that provides customized content and an extensive range of in-language community
features and a business infrastructure staffed primarily with Spanish- and
Portuguese-speaking employees. In addition to our offices located in the United
States, we have offices in Puerto Rico, Brazil, Mexico, Argentina, Chile,
Columbia, Uruguay, Venezuela and Spain.

MARKET LEADERSHIP THROUGH BRAND DEVELOPMENT. We believe that StarMedia is
the most recognized Internet brand in Latin America. We believe that many of our
regular users first visited our network in response to our marketing efforts. We
have continued to invest in building the StarMedia brands through our extensive
marketing, advertising and public relations programs. Our brand recognition has
enabled us to attract a growing user audience and leading companies as
advertisers and electronic commerce partners.

EXTENSIVE COMMUNITY AND CONTENT OFFERINGS. We believe that our extensive
local and pan-regional content, combined with our community of Internet users,
is key to our continued leadership as the Internet destinations of choice in the
region. We provide our users with a broad array of local content. In addition,
our network serves as a virtual "central plaza" to access region-specific
information and transact electronic commerce across boundaries.

DEDICATION TO USER CARE. We believe that high-quality user care and
technical support is essential to our continued success and brand development
efforts. We have local user care support teams that rapidly respond to e-mail
inquiries and provide technical advice in Spanish or Portuguese.

HIGHLY ATTRACTIVE PLATFORM FOR ADVERTISING AND COMMERCE. We believe that
the StarMedia network is a highly attractive platform for advertisers and
businesses because it gives them access to leading Internet brands in Spanish-
and Portuguese-speaking markets, a user base with a highly desirable demographic
profile and users with a high degree of affinity and involvement with the
Internet.

We have developed a client services team that is dedicated to enhancing our
relationship with advertisers and maximizing the effectiveness of their
advertising campaigns. We use our knowledge about the needs and sensitivities of
our user base to help advertisers create more effective advertising campaigns.
In addition, we use leading advertising techniques and tracking technologies to
target advertising to users with specific demographic profiles, gather extensive
data to create an intelligence profile for each campaign and use daily tracking
data to analyze the campaign's effectiveness.

We provide advertisers with detailed and timely feedback on the
effectiveness of campaigns, as well as recommendations on how to improve their
campaigns. As a result, we have been able to attract high-profile advertisers,
including IBM, Ford Motor Company, AT&T, Sony and Visa.

STRATEGY

Our objective is to strengthen our position as the leading Internet media
company targeting Spanish- and Portuguese-speaking markets worldwide. In order
to accomplish this, we intend to:

EXTEND THE RECOGNITION OF OUR BRANDS. We intend to continue to build our
brands through television, radio, print, Internet and outdoor advertising,
public relations programs, conference sponsorships, new strategic alliances, and
additional distribution relationships.

ENHANCE AND EXPAND OUR SPANISH AND PORTUGUESE CONTENT AND COMMUNITY
FEATURES. We intend to continue to add new content and features to the
StarMedia network. We believe that this will further differentiate our brands
from competing sites, provide users with a more comprehensive and satisfying
Internet experience and result in users visiting the StarMedia network more
often and remaining there longer.

We currently have relationships with leading content providers, including
Reuters, Ziff-Davis, Notimex and Ricardo Rocha. We are continually seeking new
content relationships in order to further increase the breadth and depth of our
content and community features without incurring the significant additional
costs associated with internal development of editorial content. We are also
expanding our country-specific content to further penetrate local markets.

During 2000, we entered into strategic alliances with various content
providers, by which these online companies' offerings are integrated into the
StarMedia network. The content providers pay StarMedia a fee, and at the same
time StarMedia's production costs are reduced.

PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES. We will seek to expand our
user base, revenues and competitive position through strategic acquisitions and
alliances. In 2000, we made two strategic acquisitions, which were targeted
toward expanding our local presence.

In February 2000, the Company acquired Ola Turista Ltda. ("Ola Turista"),
the owner of Guia SP and Guia RJ, leading cultural and entertainment guides in
the cities of Sao Paulo and Rio de Janeiro, Brazil. Ola Turista's portals
provide users in the Sao Paulo and Rio de Janeiro metro areas searchable
listings of restaurants, theaters, nightclubs, cinemas and sports events. In
April 2000, the Company acquired AdNet. S.A. de R.L. de C.V. ("AdNet"), a
leading Mexican search portal and Mexico's largest web directory.

We believe that these acquisitions have enhanced and will continue to
enhance significantly our presence in our markets and enable us to reach a
broader base of users and advertisers.

DEVELOP AND DEPLOY NEXT GENERATION CONTENT AND SERVICE DISTRIBUTION
PLATFORMS. We intend to seek opportunities to extend our brands beyond personal
computers to wireless products. To that end, our StarMedia Mobile division
provides our users worldwide with a richer Internet experience by allowing them
to access Internet content and applications through wireless devices.

We believe this strategy will augment our user base by enabling access to
StarMedia's content and services by users offline, enhance our brand recognition
by extending our presence to new viewership, increase our revenues by providing
new advertising, sponsorship and software licensing opportunities to our clients
and further distinguish our network from traditional Internet portals.

ADVERTISING AND BRAND AWARENESS

We have built a direct sales organization of professionals located in all of
the major cities in which we operate.

SALES ORGANIZATION

Our sales organization is dedicated to maintaining close relationships with
top advertisers and leading advertising agencies throughout our target markets.
It is structured on a regional basis, consults regularly with advertisers and
agencies on their Web-based advertising, and provides customers with advertising
measurement analysis

ADVERTISING PROGRAMS

Currently, advertisers and advertising agencies enter into agreements which
range from one month to multiple years. The majority of the advertising on our
network currently consists of banner-style advertisements, buttons and
sponsorships from which viewers can hyperlink directly to the advertiser's own
Web site. Our standard cost per thousand impressions, commonly referred to as
CPMs, for banner advertisements varies depending on location of the
advertisements on the network, the targeted country and the extent to which
advertisements are targeted for a particular audience. We also offer promotional
advertising programs in order to build brand awareness, generate leads and drive
traffic to an advertiser's site.

ADVERTISING CUSTOMERS

We had over a thousand advertisers and sponsors on our network during the
year ended December 31, 2000. The following is a selected list of our current
advertising customers:

Nokia Johnson & Johnson
AT&T Sony
Ericsson Sprint
IBM Toyota
Ford Motor Company United Airlines

We have derived substantially all of our revenues to date from the sale of
advertisements, sponsorships, direct marketing campaigns and software licensing.
In the years ended December 31, 2000 and December 31, 1999, no single advertiser
accounted for greater than 10% of total revenues.

TECHNOLOGY INFRASTRUCTURE

Our technology infrastructure is built and maintained for reliability,
security, and flexibility and is administered by our technical staff.

We maintain our production servers at multiple locations inside and outside
the U.S., including but not limited to Brazil, Argentina and Chile. Our
operations depend upon the ability of the owners of our co-location facilities
to protect our systems against damage from fire, hurricanes, power loss,
telecommunications failure, break-ins and other events. Our main U.S.
co-location facility provides comprehensive facilities management services,
including human and technical monitoring of all production servers, and also
provides connectivity for our U.S. servers through multiple high-speed
connections. In Brazil and Argentina, our servers are connected to the leading
Internet network bandwidth providers in each country. All facilities are
serviced by multiple backup power supplies. For reliability, availability, and
serviceability, we have implemented an environment in which each server can
function separately. Key components of our server architecture are served by
multiple redundant machines.

We employ in-house and third-party software to monitor access to our
production and development servers. Reporting and tracking systems generate
daily traffic, demographic, and advertising reports. Our production data is
copied to backup tapes each night. Our network must accommodate a high volume of
traffic and deliver frequently updated information. Components or features of
our network have in the past suffered outages or experienced slower response
times because of equipment or software downtime. These events did not have a
material adverse effect on our business.

LATIN AMERICAN TELECOMMUNICATION INFRASTRUCTURE

Many of the largest markets in Latin America, including Argentina, Brazil,
Chile, Colombia and Mexico, have privatized and begun to deregulate their
telephone industries. As a result of the significant investment many Latin
American telephone companies have recently undertaken there has been an
improvement in the quality of telephone service in these countries. In addition,
deregulation has directly impacted the cost and quality of Internet access as
competition has driven down both monthly access fees and per minute usage
charges.

In the past, Internet service providers, or ISPs, in Latin America charged
an average of more than $80 per month for basic Internet access. Today, monthly
Internet access fees have decreased to as low as $9 in Peru and under $20 in
Brazil, Chile, Colombia, Puerto Rico and Venezuela. A significant number of free
access providers have entered the region as well. In addition to access charges,
local calls to connect to the ISP range in cost from less than $0.02 to $0.04
per minute in the major markets in Latin America. These per minute charges may
make the total cost of Internet access substantially greater in Latin America
than in the United States, where users typically only pay a monthly access fee
and nominal local charges, if any. Long distance charges, if required, would
make the total cost of Internet access in Latin America even greater. Because
our target market consists of a relatively affluent part of the population
across Latin America, we do not believe that Internet access costs are a
significant deterrent for many of our users. However, if rates were to increase
substantially or fail to decline in the future, the number of visitors to our
network may decline or fail to grow.

The majority of Latin Americans access the Internet via traditional analog
dial-up accounts. Digital access is still relatively expensive and is not widely
available throughout Latin America. We do not

believe that the quality of telephone service has to date been a significant
deterrent to the number of users that visit our network.

COMPETITION

There are many companies that provide Web sites and online destinations
targeted to Spanish- and Portuguese-speaking people. All of these companies
compete with us for visitor traffic, advertising dollars and electronic commerce
partners. The market for Internet content companies in Latin America is new and
rapidly evolving. Competition for visitors, advertisers and electronic commerce
partners is intense and is expected to increase significantly in the future
because there are no substantial barriers to entry in our market. Increased
competition could result in lower advertising rates, price reductions and lower
profit margins, loss of visitors, reduced page views, or loss of market share.
Any one of these could materially and adversely affect our business, financial
condition and results of operations.

We compete with providers of Spanish- and Portuguese-language content and
services over the Internet, including Web directories, search engines, content
sites, Internet service providers and sites maintained by government and
educational institutions. Our current and anticipated competitors include:

- America Online Latin America;

- Terra Lycos;

- Telmex/Microsoft;

- Universo Online; and

- Yahoo! en espanol/Yahoo! Brasil.

Many of our competitors and potential new competitors have longer operating
histories, greater name recognition in some markets, larger customer bases
worldwide and significantly greater financial, technical and marketing
resources. These competitors may also be able to undertake more extensive
marketing campaigns for their brands and services, adopt more aggressive
advertising pricing policies, use superior technology platforms to deliver their
products and services and make more attractive offers to potential employees,
distribution partners and commerce companies, advertisers and third-party
content providers. This could have a material and adverse effect on our
business, financial condition and results of operations.

We also compete with traditional forms of media, like newspapers, magazines,
radio and television for advertisers and advertising revenue. If advertisers
perceive the Internet or our network to be a limited or an ineffective
advertising medium, they may be reluctant to devote a portion of their
advertising budget to Internet advertising or to advertising on our network.

GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES

To date, regulations have not materially restricted use of the Internet in
our markets. However, the legal and regulatory environment that pertains to the
Internet is uncertain and may change. New laws and regulations may be adopted.
Existing laws may be applied to the Internet and new forms of electronic
commerce. Uncertainty and new regulations could increase our costs and prevent
us from delivering our products and services over the Internet. It could also
slow the growth of the Internet significantly. This could delay growth in demand
for our network and limit the growth of our revenues. New and existing laws may
cover issues such as sales and other taxes, user privacy, pricing controls,
characteristics and quality of products and services, consumer protection,
cross-border commerce, libel and defamation, copyright, trademark and patent
infringement, pornography and other claims based on the nature and content of
Internet materials.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

We regard our copyrights, service marks, trademarks, trade secrets and other
intellectual property as critical to our success. We rely on trademark and
copyright law, trade secret protection and confidentiality and/or license
agreements with our employees, customers, partners and others to protect our
intellectual property rights. Despite our precautions, it may be possible for
third parties to obtain and use our intellectual property without authorization.

Furthermore, the validity, enforceability and scope of protection of
intellectual property in Internet-related industries is uncertain and still
evolving. The laws of some foreign countries do not protect intellectual
property to the same extent as do the laws of the United States.

We pursue the registration of our trademarks in the United States and
internationally. We may not be able to secure adequate protection for our
trademarks in the United States and other countries. In addition, there have
been oppositions filed against our applications in other countries for some of
our marks.

We currently hold service mark or trademark registrations in the United
States, Argentina, Chile, Costa Rica, the Dominican Republic, El Salvador,
Guatemala, Mexico, Portugal, Spain, Peru, Uruguay, Colombia and Paraguay for the
StarMedia mark and registrations for other marks in some of these and other
countries. Effective trademark protection may not be available in all the
countries in which we conduct business. Policing unauthorized use of our marks
is also difficult and expensive. In addition, it is possible that our
competitors will adopt product or service names similar to ours, thereby
impeding our ability to build brand identity and possibly leading to customer
confusion.

We actively seek to protect our marks against similar and confusing marks of
third parties by using a watch service, which identifies applications to
register trademarks, filing oppositions to third parties' applications for
trademarks and bringing lawsuits against infringers.

Many parties are actively developing chat, homepage, search and related Web
technologies. We expect these developers to continue to take steps to protect
these technologies, including seeking patent protection. There may be patents
issued or pending that are held by others and that cover significant parts of
our technology, business methods or services. For example, we are aware that a
number of patents have been issued in the areas of electronic commerce,
Web-based information indexing and retrieval and online direct marketing.
Disputes over rights to these technologies are likely to arise in the future. We
cannot be certain that our products do not or will not infringe valid patents,
copyrights or other intellectual property rights held by third parties. We may
be subject to legal proceedings and claims from time to time relating to the
intellectual property of others in the ordinary course of our business. In the
event that we determine that licensing this intellectual property is
appropriate, we may not be able to obtain a license on reasonable terms or at
all. We may also incur substantial expenses in defending against third-party
infringement claims, regardless of the merit of these claims. Successful
infringement claims against us may result in substantial monetary liability or
may prevent us from conducting all or a part of our business.

We also intend to continue to license technology from third parties,
including our Web-server and encryption technology. The market is evolving and
we may need to license additional technologies to remain competitive. We may not
be able to license these technologies on commercially reasonable terms or at
all. In addition, we may fail to successfully integrate any licensed technology
into our services. Our inability to obtain any of these licenses could delay
product and service development until alternative technologies can be
identified, licensed and integrated.

EMPLOYEES

As of December 31, 2000, we had 779 full-time employees, of whom 191 worked
in sales, 70 in editorial, 35 in marketing, 366 in product and technology and
117 in finance and administration. From

time to time, we employ independent contractors to support our research and
development, marketing, sales and editorial departments. We consider our
relations with our employees to be good.

RISK FACTORS

THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT
EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT STARMEDIA AND OUR
INDUSTRY. THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. OUR
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, AS MORE FULLY
DESCRIBED IN THIS SECTION AND ELSEWHERE IN THIS REPORT. WE UNDERTAKE NO
OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS FOR ANY REASON EVEN
IF NEW INFORMATION BECOMES AVAILABLE OR OTHER EVENTS OCCUR IN THE FUTURE.

RISKS RELATED TO OUR FINANCIAL CONDITION AND BUSINESS MODEL

OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT.

We were incorporated in March 1996. We commenced operations in
September 1996 and launched the StarMedia network in December 1996. Accordingly,
we have only a limited operating history for you to evaluate our business. You
must consider the risks, expenses and uncertainties that an early stage company
like ours faces. These risks include our ability to:

- increase awareness of our Internet brands and continue to build user
loyalty;

- expand the content and services on our network;

- attract a larger audience to our network;

- attract a large number of advertisers from a variety of industries;

- maintain our current, and develop new, strategic relationships;

- respond effectively to competitive pressures; and

- continue to develop and upgrade our technology.

If we are unsuccessful in addressing these risks, our business, financial
condition and results of operations will be materially and adversely affected.

WE HAVE NEVER MADE MONEY AND OUR LOSSES MAY CONTINUE.

We have never been profitable. As of December 31, 2000, we had an
accumulated deficit of approximately $353.9 million. We will need to generate
significant revenues to achieve profitability and we may not be able to do so.

WE HAVE DERIVED A PORTION OF OUR REVENUES FROM RECIPROCAL ADVERTISING
AGREEMENTS, WHICH DO NOT GENERATE CASH REVENUE.

We derive a portion of our revenues from reciprocal advertising arrangements
under which we exchange advertising space on our network predominantly for
advertising space on television and radio stations, rather than cash payments.
In the year ended December 31, 2000, we derived approximately $7.2 million, or
12% of revenues, from these arrangements. In the year ended December 31, 1999,
we derived approximately $5.5 million, or 27% of revenues, from these
arrangements. We expect that revenues from reciprocal advertising arrangements
will continue to account for a portion of our revenues in the foreseeable
future. Reciprocal advertising arrangements do not generate any cash revenues.

YOU SHOULD NOT RELY ON OUR ANNUAL OPERATING RESULTS AS AN INDICATION OF OUR
FUTURE RESULTS BECAUSE THEY ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS.

Our future revenues and results of operations may significantly fluctuate
due to a combination of factors, including:

- growth and acceptance of the Internet, particularly in Latin America;

- our ability to attract and retain users;

- demand for advertising on the Internet in general and on our network in
particular;

- our ability to upgrade and develop our systems and infrastructure;

- technical difficulties that users may experience on our network;

- technical difficulties or system downtime resulting from the developing
telecommunications infrastructure in Latin America;

- competition in our markets;

- foreign currency exchange rates that affect our international operations;
and

- general economic conditions, particularly in Latin America.

Accordingly, you should not rely on year-to-year comparisons of our results
of operations as an indication of our future performance. It is possible that in
future periods our results of operations may be below the expectations of public
market analysts and investors. This could cause the trading price of our common
stock to decline.

OUR OPERATING RESULTS MAY ALSO FLUCTUATE DUE TO SEASONAL FACTORS.

The level of use on our network is seasonal. This may cause fluctuations in
our revenues and operating results. Growth of visitor traffic on our network has
historically been significantly lower or declined during the first calendar
quarter of the year because it includes the summer months in much of Latin
America during which:

- our target audience tends to take extended vacations; and

- schools and universities are generally closed.

As a result, advertisers have historically spent less in the first calendar
quarter. We believe that these seasonal trends will continue to affect our
results of operations. We may not generate sufficient revenue to offset our
expenses during these periods.

WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT FUNDS TO GROW OUR BUSINESS.

We intend to continue to grow our business. We expect to generate losses in
the near term. Therefore, we may have future capital requirements. Obtaining
additional financing will be subject to a number of factors, including:

- market conditions;

- our operating performance; and

- investor sentiment.

These factors may make the timing, amount, terms and conditions of
additional financing unattractive for us. If we are unable to raise additional
capital, our growth could be impeded or we may be unable to continue to operate.

RISKS RELATED TO OUR MARKETS AND STRATEGY

IF THE INTERNET IS NOT WIDELY ACCEPTED AS A MEDIUM FOR ADVERTISING AND
COMMERCE, OUR BUSINESS WILL SUFFER.

We expect to derive most of our revenue for the foreseeable future from
Internet advertising, and to a lesser extent, from mobile distribution
enablement. If the Internet is not accepted as a medium for advertising and
commerce, our business will suffer. The Internet advertising market is new and
rapidly evolving, particularly in Latin America. As a result, we cannot gauge
its effectiveness or long-term market acceptance as compared with traditional
media.

Advertisers and advertising agencies must direct a portion of their budgets
to the Internet and, specifically, to our network. Many of our current or
potential advertising and electronic commerce partners have limited experience
using the Internet for advertising purposes and historically have not devoted a
significant portion of their advertising budgets to Internet-based advertising.
Advertisers that have invested substantial resources in other methods of
conducting business may be reluctant to adopt a new strategy that may limit or
compete with their existing efforts.

In addition, companies may choose not to advertise on the StarMedia network
if they do not perceive our audience demographic to be desirable or advertising
on our network to be effective.

THE ACCEPTANCE OF THE INTERNET AS A MEDIUM FOR ADVERTISING DEPENDS ON THE
DEVELOPMENT OF A MEASUREMENT STANDARD.

No standards have been widely accepted for the measurement of the
effectiveness of Internet advertising. Standards may not develop sufficiently to
support the Internet as an effective advertising medium. If these standards do
not develop, advertisers may choose not to advertise on the Internet in general
or, specifically, on our network. This would have a material adverse effect on
our business, financial condition and results of operations.

SOCIAL AND POLITICAL CONDITIONS IN LATIN AMERICA MAY CAUSE VOLATILITY IN OUR
OPERATIONS AND ADVERSELY AFFECT OUR BUSINESS.

We have and expect to continue to derive substantially all of our revenues
from the Spanish- and Portuguese-speaking markets, including the hispanic U.S.
Social and political conditions in Latin America have historically been volatile
and may cause our operations to fluctuate. This volatility could make it
difficult for us to sustain our expected growth in revenues and earnings, which
could have an adverse effect on our stock price. Historically, volatility has
been caused by:

- significant governmental influence over many aspects of local economies;

- political instability;

- unexpected changes in regulatory requirements;

- social unrest;

- slow or negative growth;

- imposition of trade barriers; and

- wage and price controls.

We have little or no control over these matters. Volatility resulting from
these matters may decrease Internet availability, create uncertainty regarding
our operating climate and adversely affect our customers' advertising budgets,
all of which may adversely impact our business.

CURRENCY FLUCTUATIONS AND GENERAL ECONOMIC CONDITIONS IN LATIN AMERICA, U.S.
OR SPAIN MAY ADVERSELY AFFECT OUR BUSINESS.

The currencies of many of the countries that we operate in have experienced
substantial depreciation and volatility. The currency fluctuations, as well as
high interest rates, inflation and high unemployment, have materially and
adversely affected the economies of these countries. Poor general economic
conditions in some of the countries we operate in could cause our revenues and
expenses to fluctuation in dollar terms.

WE MAY SUFFER CURRENCY EXCHANGE LOSSES IF LOCAL LATIN AMERICAN CURRENCIES
DEPRECIATE RELATIVE TO THE U.S. DOLLAR.

Our reporting currency is the U.S. dollar. In addition, there may be cash
balances that are held in currencies other than the U.S. dollar. In a number of
cases, however, customers in countries we do business in may be billed in local
currencies. Our accounts receivable from these customers will decline in value
if the local currencies depreciate relative to the U.S. dollar. Conversely,
depreciation of local currencies reduces our expenses in dollar terms. To date,
we have not tried to reduce our exposure to exchange rate fluctuations by using
hedging transactions. Although we may enter into hedging transactions in the
future, we may not be able to do so successfully. In addition, our currency
exchange losses may be magnified if we become subject to exchange control
regulations restricting our ability to convert local currencies into U.S.
dollars.

IF INTERNET USE IN SPANISH- AND PORTUGUESE-SPEAKING MARKETS DOES NOT GROW,
OUR BUSINESS WILL SUFFER.

The Internet in Spanish- and Portuguese-speaking markets is in an early
stage of development. Our future success depends on the continued growth of the
Internet in these markets. Our business, financial condition and results of
operations will be materially and adversely affected if Internet usage in these
markets does not continue to grow or grows more slowly than we anticipate.
Internet usage in these markets may be inhibited for a number of reasons,
including:

- the cost of Internet access;

- concerns about security, reliability, and privacy;

- ease of use; and

- quality of service.

UNDERDEVELOPED TELECOMMUNICATIONS INFRASTRUCTURE MAY LIMIT THE GROWTH OF THE
INTERNET IN LATIN AMERICA AND ADVERSELY AFFECT OUR BUSINESS.

Access to the Internet requires a relatively advanced telecommunications
infrastructure. The telecommunications infrastructure in many parts of Latin
America is not as well developed as in the United States or Europe. The quality
and continued development of the telecommunications

infrastructure in Latin America will have a substantial impact on our ability to
deliver our services and on the market acceptance of the Internet in Latin
America in general. If further improvements to the Latin American
telecommunications infrastructure are not made, the Internet will not gain broad
market acceptance in Latin America. If access to the Internet in Latin America
does not continue to grow or grows more slowly than we anticipate, our business,
financial condition and results of operations will be materially and adversely
affected.

HIGH COST OF INTERNET ACCESS MAY LIMIT THE GROWTH OF THE INTERNET IN LATIN
AMERICA AND IMPEDE OUR GROWTH.

Each country in Latin America has its own telephone rate structure which, if
too expensive, may cause consumers to be less likely to access and transact
business over the Internet. Although rates charged by Internet service providers
and local telephone companies have been reduced recently in some countries, we
do not know whether this trend will continue. Unfavorable rate developments
could decrease our visitor traffic and our ability to derive revenues from
transactions over the Internet. This could have a material adverse effect on our
business, financial condition and results of operations.

OUR PAN-REGIONAL APPROACH TO CONTENT DELIVERY MAY NOT BE APPEALING TO OUR
USERS.

Our target markets are made up of a number of diverse regions that differ
historically, culturally, economically and politically. We generally use a
pan-regional approach to community development and to advertisements. Users,
however, may prefer content and community features which are specifically
created for a local audience using a strictly localized approach over our
pan-regional approach. If users do not find the pan-regional content on our
network appealing, they may decrease in number and advertisers may find our
network an unattractive medium on which to advertise.

WE MAY NOT BE ABLE TO DEVELOP OUR BRANDS AND ATTRACT USERS TO OUR NETWORK.

Maintaining our brands is critical to our ability to expand our user base
and our revenues. We believe that the importance of brand recognition will
increase as the number of Internet sites in our target markets grows. In order
to attract and retain Internet users, advertisers and electronic commerce
partners, we intend to invest in creating and maintaining brand loyalty.

Our success in promoting and enhancing our brands will also depend on our
success in providing high quality content, features and functionality. If we
fail to promote our brands successfully or if visitors to our network or
advertisers do not perceive our services to be of high quality, the value of our
brands could be diminished. This could have a material and adverse effect on our
business, financial condition and results of operations.

OUR ADVERTISING PRICING MODELS MAY NOT BE SUCCESSFUL.

Different pricing models are used to sell advertising on the Internet, and
the models we adopt may prove to not be the most profitable. Advertising based
on impressions, or the number of times an advertisement is delivered to users,
comprises a significant portion of our revenues. To the extent that minimum
guaranteed impression levels are not met, we defer recognition of the
corresponding revenues until guaranteed impression levels are achieved. To the
extent that minimum impression levels are not achieved, we may be required to
provide additional impressions after the contract term, which would reduce our
advertising inventory. This could have a material adverse effect on our
business, financial condition and results of operations.

WE MAY NOT BE ABLE TO SUCCESSFULLY ADAPT TO NEW INTERNET ADVERTISING PRICING
MODELS.

It is difficult to predict which pricing model, if any, will emerge as the
industry standard. This makes it difficult to project our future advertising
rates and revenues. Our advertising revenues could be adversely affected if we
are unable to adapt to new forms of Internet advertising or we do not adopt the
most profitable form.

WE MAY NOT BE ABLE TO TRACK THE DELIVERY OF ADVERTISEMENTS ON OUR NETWORK IN
A WAY THAT MEETS THE NEEDS OF OUR ADVERTISERS.

It is important to our advertisers that we accurately measure the
demographics of our user base and the delivery of advertisements on our network.
Companies may choose to not advertise on our network or may pay less for
advertising if they do not perceive our ability to track and measure the
delivery of advertisements to be reliable. We depend on third parties to provide
us with some of these measurement services. If they are unable to provide these
services in the future, we would need to perform them ourselves or obtain them
from another provider. This could cause us to incur additional costs or cause
interruptions in our business during the time we are replacing these services.
We are currently implementing additional systems designed to record information
on our users. If we do not implement these systems successfully, we may not be
able to accurately evaluate the demographic characteristics of our users.

THE LOSS OF ONE OF OUR TOP ADVERTISERS COULD SIGNIFICANTLY REDUCE OUR
ADVERTISING REVENUE AND MATERIALLY ADVERSELY AFFECT OUR BUSINESS.

In 1999, our top five advertisers accounted for approximately 16% of our
total revenues. In 2000, our top five advertisers accounted for approximately
22% of our total revenues. Our business, results of operations and financial
condition could be materially and adversely affected by the loss of one or more
of our top advertisers. If we do not attract additional advertisers, our
business, financial condition and results of operations could be materially
adversely affected.

WE EXPECT TO CONTINUE TO RELY HEAVILY ON ADVERTISING REVENUES AND IF WE DO
NOT INCREASE OUR ADVERTISING SALES, OUR BUSINESS WILL NOT GROW AS EXPECTED.

We depend on our advertising sales department to maintain and increase our
advertising sales. Our business, financial condition and results of operations
could be materially and adversely affected if our advertising sales department
is not effective.

WE MAY NOT BE ABLE TO EFFECTIVELY MANAGE OUR EXPANDING OPERATIONS.

We have recently experienced a period of rapid growth. This has placed a
significant strain on our managerial, operational and financial resources. We
believe our systems are adequate, but we may have to implement new or upgraded
operating and financial systems, procedures and controls throughout many
different locations. We may not succeed with these efforts. Our failure to
expand and integrate these areas in an efficient manner could cause our expenses
to grow, our revenues to decline or grow more slowly than expected and could
otherwise have a material adverse effect on our business, financial condition
and results of operations.

OUR BUSINESS AND GROWTH WILL SUFFER IF WE ARE UNABLE TO HIRE AND RETAIN KEY
PERSONNEL.

We depend on the services of our senior management and key technical
personnel. The loss of the services of key executive officers or any of our key
management, sales or technical personnel could have a material adverse effect on
our business, financial condition and results of operations. In addition, our
success is largely dependent on our ability to hire highly qualified managerial,
sales and technical personnel. These individuals are in high demand and we may
not be able to attract the staff we need. The difficulties and costs in
connection with our personnel growth are compounded by the fact that many of our
operations are internationally based.

OUR JOINT VENTURES, ACQUISITIONS AND ALLIANCES MAY STRAIN OUR MANAGERIAL,
OPERATIONAL AND FINANCIAL RESOURCES AND MAY BE DISRUPTIVE TO OUR BUSINESS.

In the past, we have acquired or developed alliances with complementary
businesses, technologies, services or products. In particular, during 2000, we
made two acquisitions. Acquisitions, even if successfully integrated, could
result in a number of financial consequences, including:

- potentially dilutive issuances of equity securities;

- large non-recurring write-offs;

- reduced cash balances and related interest income;

- higher fixed expenses which require a higher level of revenues to maintain
gross margins;

- the incurrence of debt and contingent liabilities; and

- amortization expenses related to goodwill and other intangible assets.

Furthermore, acquisitions involve numerous operational risks, including:

- difficulties in the integration of operations, personnel, technologies,
products and the information systems of the acquired companies;

- diversion of management's attention from other business concerns;

- diversion of resources from our existing businesses, products or
technologies;

- risks of entering geographic and business markets in which we have no or
limited prior experience; and

- potential loss of key employees of acquired organizations.

We could have difficulty in effectively assimilating and integrating these,
or any future joint ventures, acquisitions or alliances, into our operations.
Any difficulties or successes in this process could disrupt our ongoing
business, distract our management and employees, increase our expenses and
otherwise adversely affect our business.

FINANCING FOR FUTURE JOINT VENTURES, ACQUISITIONS OR ALLIANCES MAY NOT BE
AVAILABLE OR MAY DILUTE EXISTING STOCKHOLDERS.

We do not know if we will be able to identify any future joint ventures,
acquisitions or alliances or that we will be able to successfully finance these
transactions. A failure to identify or finance future transactions may impair
our growth. In addition, to finance these transactions, it may be necessary for
us to raise additional funds through public or private financings. Any equity or
debt financings, if available at all, may impact our operations and, in the case
of equity financings, may result in dilution to existing stockholders.

WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY AGAINST OUR COMPETITORS.

There are many companies that provide Web sites and online destinations
targeted to Spanish- and Portuguese-speaking people in general. Competition for
visitors, advertisers and electronic commerce partners is intense and is
expected to increase significantly in the future because there are no
substantial barriers to entry in our market.

Increased competition could result in:

- lower advertising rates;

- price reductions and lower profit margins;

- loss of visitors;

- reduced page views; or

- loss of market share.

Any one of these could materially and adversely affect our business,
financial condition and results of operations.

In addition, our competitors may develop content that achieves greater
market acceptance. It is also possible that new competitors may emerge and
acquire significant market share. A loss of users to our competitors may have a
material and adverse effect on our business, financial condition and results of
operations.

WE MAY NOT BE ABLE TO ATTRACT VISITORS OR ADVERTISERS IF WE DO NOT ENHANCE
AND DEVELOP THE CONTENT AND FEATURES OF OUR NETWORK.

To remain competitive, we must continue to enhance and improve our content.
In addition, we must:

- improve the responsiveness, functionality and features of our network; and

- develop other products and services that are attractive to users and
advertisers.

We may not succeed in developing or introducing features, functions,
products and services that visitors and advertisers find attractive in a timely
manner. This would likely reduce our visitor traffic and materially and
adversely affect our business, financial condition and results of operations.

WE RELY FOR OUR CONTENT ON THIRD PARTIES WHO MAY MAKE THEIR CONTENT
AVAILABLE TO OUR COMPETITORS.

We attempt to determine what content, features and functionality our target
audience wants. We rely to a large extent on third parties for our content, much
of which is easily available from other sources. If other networks present the
same or similar content in a superior manner, it may adversely affect our
visitor traffic.

IF WE FAIL TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS WITH CONTENT
PROVIDERS, ELECTRONIC COMMERCE MERCHANTS AND TECHNOLOGY PROVIDERS, WE MAY NOT BE
ABLE TO ATTRACT AND RETAIN USERS.

We have focused on establishing relationships with leading content
providers, electronic commerce merchants, and technology and infrastructure
providers. Our business depends extensively on these relationships. Because most
of our agreements with these third parties are not exclusive, our competitors
may seek to use the same partners as we do and attempt to adversely impact our
relationships with our partners. We might not be able to maintain these
relationships or replace them on financially attractive terms.

If the parties with which we have these relationships do not adequately
perform their obligations, reduce their activities with us, choose to compete
with us or provide their services to a competitor, we may have more difficulty
attracting and maintaining visitors to our network and our business, financial
condition and results of operations could be materially and adversely affected.
Also, we intend to actively seek additional relationships in the future. Our
efforts in this regard may not be successful.

RISKS RELATED TO THE INTERNET AND OUR TECHNOLOGY INFRASTRUCTURE

UNEXPECTED NETWORK INTERRUPTIONS CAUSED BY SYSTEM FAILURES MAY RESULT IN
REDUCED VISITOR TRAFFIC, REDUCED REVENUE AND HARM TO OUR REPUTATION.

In the past, we have experienced:

- system disruptions;

- inaccessibility of our network;

- long response times;

- impaired quality; and

- loss of important reporting data.

Although we are continually improving our network, we may not be successful
in implementing new measures. If we experience delays and interruptions, visitor
traffic may decrease and our brand could be adversely affected. Because our
revenues depend on the number of individuals who use our network, our business
may suffer if our improvement efforts are unsuccessful.

We maintain our production servers at multiple locations inside and outside
the U.S. including but not limited to Brazil, Argentina and Chile. Our
operations depend upon the ability of the owners of our co-location facilities
to protect their systems against damage from fire, hurricanes, power loss,
telecommunications failure, break-ins and other events.

CONCERNS ABOUT SECURITY OF ELECTRONIC COMMERCE TRANSACTIONS AND
CONFIDENTIALITY OF INFORMATION ON THE INTERNET MAY REDUCE THE USE OF OUR NETWORK
AND IMPEDE OUR GROWTH.

A significant barrier to electronic commerce and confidential communications
over the Internet has been the need for security. Internet usage could decline
if any well-publicized compromise of security occurred. We may incur significant
costs to protect against the threat of security breaches or to alleviate
problems caused by these breaches. Unauthorized persons could attempt to
penetrate our network security. If successful, they could misappropriate
proprietary information or cause interruptions in our services. As a result, we
may be required to expend capital and resources to protect against or to
alleviate these problems. Security breaches could have a material adverse effect
on our business, financial condition and results of operations.

COMPUTER VIRUSES MAY CAUSE OUR SYSTEMS TO INCUR DELAYS OR INTERRUPTIONS AND
MAY ADVERSELY AFFECT OUR BUSINESS.

Computer viruses may cause our systems to incur delays or other service
interruptions. In addition, the inadvertent transmission of computer viruses
could expose us to a material risk of loss or litigation and possible liability.
Moreover, if a computer virus affecting our system is highly publicized, our
reputation could be materially damaged and our visitor traffic may decrease.

RISKS RELATED TO LEGAL UNCERTAINTY

WE MAY BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATIONS AND LEGAL
UNCERTAINTIES AFFECTING THE INTERNET, WHICH COULD ADVERSELY AFFECT OUR BUSINESS.

To date, governmental regulations have not materially restricted use of the
Internet in our markets. However, the legal and regulatory environment that
pertains to the Internet is uncertain and may change. Uncertainty and new
regulations could increase our costs of doing business and prevent us from
delivering our products and services over the Internet. The growth of the
Internet may also be

significantly slowed. This could delay growth in demand for our network and
limit the growth of our revenues.

In addition to new laws and regulations being adopted, existing laws may be
applied to the Internet. New and existing laws may cover numerous issues,
including:

- sales and other taxes;

- user privacy;

- pricing controls;

- characteristics and quality of products and services;

- consumer protection;

- cross-border commerce;

- libel and defamation;

- copyright, trademark and patent infringement;

- pornography; and

- other claims based on the nature and content of Internet materials.

WE MAY BECOME SUBJECT TO CLAIMS REGARDING FOREIGN LAWS AND REGULATIONS WHICH
MAY BE EXPENSIVE, TIME CONSUMING AND DISTRACTING.

Because we have employees, property and business operations throughout the
world, we are subject to the laws and the court systems of many jurisdictions.
We may become subject to claims based on foreign jurisdictions for violations of
their laws. In addition, these laws may be changed or new laws may be enacted in
the future. International litigation is often expensive, time consuming and
distracting. Accordingly, any of the foregoing could have a material adverse
effect on our business, financial condition and results of operations.

UNAUTHORIZED USE OF OUR INTELLECTUAL PROPERTY BY THIRD PARTIES MAY ADVERSELY
AFFECT OUR BUSINESS.

We regard our copyrights, service marks, trademarks, trade secrets and other
intellectual property as critical to our success. Unauthorized use of our
intellectual property by third parties may adversely affect our business and our
reputation. We rely on trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with our employees, customers,
partners and others to protect our intellectual property rights. Despite our
precautions, it may be possible for third parties to obtain and use our
intellectual property without authorization. Furthermore, the validity,
enforceability and scope of protection of intellectual property in
Internet-related industries is uncertain and still evolving. The laws of some
foreign countries are uncertain or do not protect intellectual property rights
to the same extent as do the laws of the United States.

DEFENDING AGAINST INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS COULD BE TIME
CONSUMING AND EXPENSIVE AND, IF WE ARE NOT SUCCESSFUL, COULD SUBJECT US TO
SIGNIFICANT DAMAGES AND DISRUPT OUR BUSINESS.

We cannot be certain that our products do not or will not infringe valid
patents, copyrights or other intellectual property rights held by third parties.
We may be subject to legal proceedings and claims from time to time relating to
the intellectual property of others in the ordinary course of our business. We
may incur substantial expenses in defending against these third-party
infringement claims, regardless of their merit. Successful infringement claims
against us may result in substantial monetary liability or may materially
disrupt the conduct of our business.

WE MAY BE SUBJECT TO CLAIMS BASED ON THE CONTENT WE PROVIDE OVER OUR
NETWORK.

The laws in our target markets relating to the liability of companies which
provide online services, like ours, for activities of their visitors are
currently unsettled. Claims have been made against online service providers and
networks in the past for defamation, negligence, copyright or trademark
infringement, obscenity, personal injury or other theories based on the nature
and content of information that was posted online by their visitors. We could be
subject to similar claims and incur significant costs in their defense. In
addition, we could be exposed to liability for the selection of listings that
may be accessible through our network or through content and materials that our
visitors may post in classifieds, message boards, chat rooms or other
interactive services. It is also possible that if any information provided
through our services contains errors, third parties could make claims against us
for losses incurred in reliance on the information. We offer Web-based e-mail
services, which expose us to potential liabilities or claims resulting from:

- unsolicited e-mail;

- lost or misdirected messages;

- illegal or fraudulent use of e-mail; or

- interruptions or delays in e-mail service.

Investigating and defending these claims is expensive, even if they do not
result in liability.

WE MAY BE SUBJECT TO CLAIMS BASED ON PRODUCTS SOLD ON OUR NETWORK.

We have entered into arrangements to offer third-party products and services
on our network under which we may be entitled to receive a share of revenues
generated from these transactions. These arrangements may subject us to
additional claims including product liability or personal injury from the
products and services, even if we do not ourselves provide the products or
services. These claims may require us to incur significant expenses in their
defense or satisfaction. While our agreements with these parties often provide
that we will be indemnified against such liabilities, such indemnification may
not be adequate.

Although we carry general liability insurance, our insurance may not cover
all potential claims to which we are exposed or may not be adequate to indemnify
us for all liability that may be imposed. Any imposition of liability that is
not covered by insurance or is in excess of insurance coverage could have a
material adverse effect on our business, financial condition and results of
operations or could result in the imposition of criminal penalties. In addition,
the increased attention focused on liability issues as a result of these
lawsuits and legislative proposals could impact the overall growth of Internet
use.

OTHER RISKS

OUR STOCK PRICE HAS BEEN HIGHLY VOLATILE AND COULD DROP UNEXPECTEDLY.

The stock market has from time to time experienced significant price and
volume fluctuations that have affected the market prices for the securities of
technology companies, particularly Internet companies. As a result, investors in
our common stock may experience a decrease in the value of their common stock
regardless of our operating performance or prospects.

IF OUR STOCK PRICE REMAINS VOLATILE, WE MAY BECOME SUBJECT TO SECURITIES
LITIGATION WHICH IS EXPENSIVE AND COULD RESULT IN A DIVERSION OF RESOURCES.

In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation has often
been brought against that company. Many companies in our industry have been
subject to this type of litigation in the past. We may also become involved in
this type of litigation. Litigation is often expensive and diverts management's
attention and resources, which could have a material adverse effect upon our
business, financial condition and results of operations.

OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER THAT
STOCKHOLDERS MAY CONSIDER FAVORABLE.

Provisions in our charter and bylaws may have the effect of delaying or
preventing a change of control or changes in our management that stockholders
consider favorable or beneficial. If a change of control or change in management
is delayed or prevented, the market price of our common stock could suffer.

A SMALL GROUP OF OUR EXISTING STOCKHOLDERS OWN A SIGNIFICANT NUMBER OF
SHARES AND THEIR INTERESTS MAY DIFFER FROM OTHER STOCKHOLDERS.

Our directors, executive officers and affiliates currently beneficially own
approximately 44.12% of the outstanding shares of our common stock. Accordingly,
they will have significant influence in determining the outcome of any corporate
transaction or other matter submitted to the stockholders for approval,
including mergers, consolidations and the sale of all or substantially all of
our assets. The interests of these stockholders may differ from the interests of
the other stockholders.

ITEM 2. PROPERTIES

Our principal executive offices are located in approximately 140,000 square
feet of office space in New York, New York, under a lease that expires in
November 2011. We also lease sales and business development office space in all
of the major cities in which we operate.

ITEM 3. LEGAL PROCEEDINGS.

We are subject to legal proceedings and claims in the ordinary course of
business from time to time, including claims of alleged infringement of
trademarks, copyrights and other intellectual property rights, and a variety of
claims arising in connection with our e-mail, message boards, and other
communications and community features, such as claims alleging defamation and
invasion of privacy. In December 2000, a consulting company filed suit against
us, claiming unpaid fess of approximately $2,322,000. We have denied all
material allegations since, among other things, the consulting company rendered
services to an unfunded subsidiary and we had notified them that we would not be
liable for such fees. We believe that this matter will be resolved without any
material adverse impact to our financial position, results of operations or cash
flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

MARKET PRICE OF COMMON STOCK

Our common stock has been quoted on the Nasdaq National Market under the
symbol STRM since our initial public offering on May 26, 1999. The following
table sets forth, for the periods indicated, the high and low close prices per
share of the common stock as reported on the Nasdaq National Market:

2000: HIGH LOW
- ----- -------- --------

Fourth Quarter.............................................. $ 8.47 $ 1.50
Third Quarter............................................... $19.50 $ 6.56
Second Quarter.............................................. $30.50 $14.13
First Quarter............................................... $61.00 $28.63

HOLDERS

As of March 9, 2001, there were approximately 403 holders of record of our
common stock.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain future earnings, if any, to finance the expansion of
our business and do not expect to pay any cash dividends for the foreseeable
future.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below with respect to our
consolidated statements of operations for the years ended December 31, 2000,
1999, 1998, 1997 and the period from March 5, 1996 (inception) to December 31,
1996 and balance sheets as of December 31, 2000, 1999, 1998, 1997 and 1996 are
derived from our audited consolidated financial statements. The selected
consolidated financial data set forth below should be read in conjunction with
"Management's

Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and the notes to those statements included
elsewhere in this report.

PERIOD FROM
MARCH 5, 1996
(INCEPTION) TO YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------------------
1996 1997 1998 1999 2000
-------------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

SUPPLEMENTAL CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues............................... $ -- $ 472 $ 5,758 $ 20,089 $ 61,028
Operating expenses:
Product and technology development... 36 1,233 7,101 33,192 67,670
Sales and marketing.................. 12 2,110 29,281 53,399 79,794
General and administrative........... 78 650 4,810 15,318 31,743
Non-recurring charges................ -- -- -- 1,613 3,935
Depreciation and amortization........ 2 38 785 6,500 28,295
Stock-based compensation expense..... -- -- 10,421 6,400 4,519
Impairment of goodwill............... -- -- -- -- 37,170
------ ------- -------- --------- ---------
Total operating expenses............... 128 4,031 52,398 116,422 253,126
------ ------- -------- --------- ---------
Operating loss......................... (128) (3,559) (46,640) (96,333) (192,098)
------ ------- -------- --------- ---------
Impairment of other assets............. -- -- -- -- (19,378)
Loss in unconsolidated subsidiary...... -- -- -- -- (2,500)
Interest income, net................... -- 34 667 5,891 9,871
Other expenses......................... -- -- -- -- (318)
------ ------- -------- --------- ---------
Loss before provision for income
taxes................................ (128) (3,525) (45,973) (90,442) (204,423)
Provision for income taxes............. -- -- -- (231) (158)
------ ------- -------- --------- ---------
Net loss............................... (128) (3,525) (45,973) (90,673) (204,581)
Preferred stock dividends and
accretion............................ -- (185) (4,536) (4,266) --
------ ------- -------- --------- ---------
Net loss available to common
shareholders......................... $ (128) $(3,710) $(50,509) $ (94,939) $(204,581)
====== ======= ======== ========= =========
Basic and diluted net loss per share... $(0.01) $ (0.37) $ (4.51) $ (2.31) $ (3.10)
====== ======= ======== ========= =========
Shares used in computing basic and
diluted net loss per share........... 9,147 10,040 11,204 41,171 65,920
====== ======= ======== ========= =========

AS OF DECEMBER 31,
----------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS)

SUPPLEMENTAL CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................... $230 $ 443 $ 53,147 $274,089 $ 93,408
Working capital................................ 284 149 47,500 260,235 82,613
Total assets................................... 313 810 61,156 356,071 215,663
Capital lease obligations...................... -- 18 229 58 1
Total current liabilities...................... -- 342 7,870 26,935 44,688
Long-term debt, noncurrent..................... -- -- -- 2,380 1,902
Redeemable convertible preferred stock......... -- 3,833 96,494 -- --
Total stockholders' (deficit) equity........... 313 (3,394) (43,339) 326,361 166,874

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL
STATEMENTS AND NOTES TO THOSE STATEMENTS AND OTHER FINANCIAL INFORMATION
APPEARING ELSEWHERE IN THIS REPORT.

StarMedia is the leading Internet media company targeting Spanish- and
Portuguese- speaking audiences worldwide. We were incorporated in March 1996 and
commenced operations in September 1996.

During 2000, we continued the development of the StarMedia network and
related technology infrastructure and also focused on recruiting personnel, and
developing content to attract and retain users. In 2000, we:

- improved and upgraded our services;

- expanded our production staff;

- expanded our direct sales force;

- increased our marketing activities in order to build the StarMedia brand;
and

- added services via internal development and acquisitions.

ACQUISITIONS

OLA TURISTA LTDA.

In February 2000, the Company acquired Ola Turista Ltda. ("Ola Turista"),
the owner of Guia SP and Guia RJ, leading cultural and entertainment guides in
the cities of Sao Paulo and Rio de Janeiro, Brazil in exchange for 71,524 shares
of its common stock and $2.0 million in cash. Ola Turista's portals provide
users in the Sao Paulo and Rio de Janeiro metro areas searchable listings of
restaurants, theaters, nightclubs, cinemas and sports events. Pursuant to the
purchase agreement, StarMedia is obligated to pay additional consideration in
the form of StarMedia common stock, subject to Ola Turista meeting certain
specified performance targets. This acquisition was accounted for under the
purchase method of accounting.

ADNET S.A.

In April 2000, the Company acquired AdNet. S.A. de R.L. de C.V. ("AdNet"), a
leading Mexican search portal and Mexico's largest web directory. The Company
paid $5.0 million in cash and issued 469,577 shares of common stock to acquire
all of the outstanding equity of AdNet. Pursuant to the purchase agreement,
StarMedia is obligated to pay additional consideration in the form of StarMedia
common stock over a five year period, subject to AdNet meeting certain specified
performance targets. This acquisition was accounted for under the purchase
method of accounting.

To date, we have derived substantially all of our revenues from the sale of
advertising.

Advertising revenues are derived principally from:

- advertising arrangements under which we receive revenues based on a
cost-per-thousand-impressions basis, commonly referred to as CPMs;

- sponsorship arrangements which allow advertisers to sponsor an area on our
network in exchange for a fixed payment;

- reciprocal advertising arrangements, under which we exchange advertising
space on our network predominantly for advertising time on television and
radio stations;

- design, coordination and integration of advertising campaigns and
sponsorships to be placed on our network; and

- direct marketing campaigns.

Advertising and sponsorship rates depend primarily on:

- whether the impressions are for general audiences or targeted audiences;

- the size and placement of the advertisement; and

- the number of guaranteed impressions, if any.

We have entered into reciprocal advertising arrangements with various media
companies. We do not receive any cash payments for these arrangements.

To date, we have engaged in no reciprocal advertising arrangements under
which we have received online advertising.

We have a limited operating history for you to use as a basis for evaluating
our business. You must consider the risks and difficulties frequently
encountered by early stage companies like us in new and rapidly evolving
markets, including the Internet advertising market. These risks are set forth
under the caption "Risk Factors" beginning on page 10 of this report.

We have incurred significant net losses and negative cash flows from
operations since our inception. At December 31, 2000, we had an accumulated
deficit of $353.9 million. These losses have been funded primarily through the
issuance of our equity securities.

We recorded deferred compensation of approximately $19.1 million in 1998 and
$6.2 million in 1999. There were no additional deferred compensation charges for
the year ended December 31, 2000. The deferred compensation recorded in 1998 and
1999 represents the difference between the exercise price of stock options
granted in 1998 and 1999 and the fair market value of the underlying common
stock at the date of grant. The difference is recorded as a reduction of
stockholders' equity and amortized over the vesting period of the applicable
options. Of the total deferred compensation amount, approximately
$10.4 million, $6.4 million and $4.5 million was amortized during the years
ended December 31, 1998, 1999 and 2000, respectively. The amortization of
deferred compensation is recorded as an operating expense. As a result, we
currently expect to amortize $2,084,000, $516,000 and $36,000 of deferred
compensation annually in 2001, 2002 and 2003, respectively.

RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000 AND 1999

REVENUES

Revenues increased to $61.0 million for the year ended December 31, 2000
from $20.1 million for the year ended December 31, 1999. The increase in
revenues was primarily due to an increase in the volume of advertising
impressions and sponsorships sold. During 2000, we continued to expand our sales
force; increase the number of impressions available on our network by adding
channels and by increasing our marketing efforts; and expand through
acquisitions.

For the year ended December 31, 2000, no single advertiser accounted for
more than 10% of total revenues. For the year ended December 31, 1999, no
advertiser accounted for more than 10% of our total revenues. For the year ended
December 31, 2000, our top five advertisers accounted for 22% of our total
revenues. For the year ended December 31, 1999, our top five advertisers
accounted for 16% of our total revenues. For the year ended December 31, 2000,
we derived approximately $7.2 million, or 12% of total revenues, from reciprocal
advertising arrangements. For the year ended December 31, 1999, we derived
approximately $5.5 million, or 27% of total revenues, from reciprocal
advertising arrangements. We do not receive any cash payments for these
arrangements.

OPERATING EXPENSES

PRODUCT AND TECHNOLOGY. Product and technology expenses include personnel
costs; hosting and telecommunication costs; and content acquisition fees and
revenue sharing arrangements related to agreements with third-party content
providers under which we pay guaranteed fees and/or a portion of our revenues.

For the year ended December 31, 2000, product and technology expenses
increased to $67.7 million, or 111% of total revenues, from $33.2 million, or
165% of total revenues, for the year ended December 31, 1999. This increase was
primarily due to an increase of approximately $18.3 million related to increased
staffing levels, approximately $5.6 million to enhance the content and features
of the StarMedia network and approximately $6.9 million for hosting costs.

SALES AND MARKETING. Sales and marketing expenses consist primarily of
advertising costs, including the costs of advertisements placed on various
television networks under our reciprocal advertising arrangements, salaries and
commissions of sales and marketing personnel, public relations costs, and other
marketing-related expenses.

Sales and marketing expenses increased to $79.8 million, or 131% of total
revenues, for the year ended December 31, 2000 from $53.4 million, or 266% of
total revenues, for the year ended December 31, 1999. The increase in sales and
marketing expenses was primarily attributable to expansion of our advertising,
public relations and other promotional expenditures related to our branding
campaign of approximately $8.7 million, and higher personnel expenses, including
sales commissions, of approximately $9.7 million.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries and benefits, costs for general corporate functions,
including finance, accounting and facilities, and fees for professional
services.

General and administrative expenses increased to $31.7 million, or 52% of
total revenues, for the year ended December 31, 2000, from $15.3 million, or 76%
of total revenues, for the year ended December 31, 1999. The increase in general
and administrative expenses was primarily due to increased salaries and related
expenses associated with the hiring of additional personnel of approximately
$5.9 million, additional rental costs and office-related costs of approximately
$5.0 million, additional taxes and insurance charges of approximately
$1.8 million and additional legal, tax and audit fees of approximately
$2.5 million.

NON-RECURRING CHARGES

Non-recurring charges for the year ended December 31, 2000 consisted of a
one-time charge of $3.9 million associated with the integration of our
subsidiaries and a company-wide realignment of business operations.

Non-recurring charges for the year ended December 31, 1999 include a
one-time charge of $1.6 million related to the acquisitions of Wass Net and
Webcast Solutions. Since the acquisitions were each accounted for as pooling of
interests, these costs were expensed at the close of the transactions.

IMPAIRMENT OF GOODWILL

In the fourth quarter of 2000, the Company determined that the fair market
value of certain acquired assets was below their respective carrying values
(inclusive of the related goodwill). As a result, the Company recorded a
goodwill impairment charge of $37.2 million.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization expenses increased to $28.3 million, or 46% of
total revenues, for the year ended December 31, 2000 from $6.5 million, or 32%
of total revenues, for the year ended December 31, 2000. The increase was
attributable to both the addition of $46 million in fixed assets during 2000 and
the full-year amortization of goodwill relating to acquisitions made in 1999. As
a result of the impairment of goodwill charge, amortization expense for goodwill
is expected to be reduced in future periods.

STOCK-BASED COMPENSATION EXPENSE

Deferred compensation of $4.5 million was recorded as an expense during the
year ended December 31, 2000. The unamortized balance is being amortized over
the vesting period for the individual options.

IMPAIRMENT OF OTHER ASSETS

In the fourth quarter of 2000, the Company determined that certain long-term
assets, principally minority investments in other companies were permanently
impaired and recorded an additional impairment charge of $19.4 million.

NET INTEREST INCOME

Net interest income includes income from our cash and investments. Net
interest income increased from $5.9 million for the year ended December 31, 1999
to $9.9 million for the year ended December 31, 2000. The increase is primarily
a result of an increase in the average cash balances for the year ended
December 31, 2000 as compared to December 31, 1999.

RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998

REVENUES

Revenues increased to $20.1 million for the year ended December 31, 1999
from $5.8 million for the year ended December 31, 1998. The increase in revenues
was primarily due to an increase in the volume of advertising impressions and
sponsorships sold. During 1999, we expanded our sales force, and increased the
number of impressions available on our network by adding channels and by
increasing our marketing efforts and expanded through acquisitions.

For the year ended December 31, 1998, two advertisers each accounted for
greater than 10% of total revenues. For the year ended December 31, 1999, no
single advertiser accounted for more than 10% of our revenue. For the year ended
December 31, 1998, our top five advertisers accounted for 57% of our total
revenues. For the year ended December 1999, our top five advertisers accounted
for 16% of our total revenues. For the year ended December 31, 1999, we derived
approximately $5.5 million or 27% of total revenues, from reciprocal advertising
arrangements. We do not receive any cash payments for these arrangements.

OPERATING EXPENSES

PRODUCT AND TECHNOLOGY. Product and technology expenses include personnel
costs, hosting and telecommunications costs, and content acquisition fees and
revenue sharing arrangements related to agreements with third-party content
providers under which we pay guaranteed fees and/or a portion of our revenues.

For the year ended December 31, 1999, product and technology expenses
increased to $33.2 million, or 165% of total revenues, from $7.1 million, or
122% of total revenues, for the year ended December 31, 1998. The increase was
primarily due to an increase of approximately $8.7 million related to staffing
levels and approximately $5.5 million to enhance the content and features of the
StarMedia network.

Sales and marketing expenses increased to $53.4 million, or 266% of total
revenues, for the year ended December 31, 1999 from $29.3 million, or 505% of
total revenues, for the year ended December 31, 1998.

The increase in sales and marketing expenses was primarily attributable to
expansion of our advertising, public relations and other promotional
expenditures related to our branding campaign of approximately $10.1 million,
and higher personnel expenses, including sales commissions, of approximately
$7.3 million.

GENERAL AND ADMINISTRATIVE. General and administrative expenses primarily
consist of salaries and benefits, costs for general corporate functions,
including finance, accounting and facilities, and fees for professional
services. General and administrative expenses increased to $15.3 million, or 76%
of total revenues, for the year ended December 31, 1999, from $4.8 million, or
83% of total revenues, for the year ended December 31, 1998. The increase in
general and administrative expenses was primarily due to increased salaries and
related expenses associated with the hiring of additional personnel of
approximately $4.3 million, additional rental costs and office-related costs of
approximately $2.2 million and additional taxes and insurance charges of
approximately $1.1 million.

NON-RECURRING CHARGES

DEPRECIATION AND AMORTIZATION

Depreciation and amortization expenses increased to $3.9 million, or 19% of
total revenues, for the year ended December 31, 1999 from $785,000, or 14% of
total revenues, for the year ended December 31, 1998. The dollar increases were
primarily attributable to the increase in fixed assets of approximately
$21.4 million during 1999. We also incurred goodwill amortization expenses of
$2.6 million related to acquisitions completed in 1999.

STOCK-BASED COMPENSATION EXPENSE

We recorded additional deferred compensation of $6.2 million for the year
ended December 31, 1999. Deferred compensation of $6.4 million was recorded as
an expense for the year ended December 31, 1999. The unamortized balance is
being amortized over the vesting period for the individual options.

NET INTEREST INCOME

Net interest income includes income from our cash and investments. Net
interest income increased from $667,000 for the year ended December 31, 1998 to
$5.9 million for the year ended December 31,

1999. Net interest income increased as a result of an increase in the average
cash balance for the year ended December 31, 1999 as compared to the year ended
December 31, 1998.

QUARTERLY RESULTS

The following table sets forth certain unaudited quarterly operation
information for the most recent eight quarters ending with the quarter ended
December 31, 2000. This information has been prepared on the same basis as the
audited consolidated financial statements and, in the opinion of management,
includes all adjustments, consisting only of normal recurring adjustments,
necessary for the fair presentation of the information for the periods
presented. This information should be read in conjunction with the Company's
Consolidated Financial Statements and related Notes thereto. Results of
operations for any previous fiscal quarter are not indicative of results for the
full year or any future quarter.

MAR 31, JUNE 30, SEPT 30, DEC 31, MAR 31, JUNE 30, SEPT 30,
1999 1999 1999 1999 2000 2000 2000
------------ ------------ ------------ ------------ ------------ ------------ ------------

Statement of Income
Data:
Revenues............. $ 1,594,000 $ 3,880,000 $ 5,618,000 $ 8,997,000 $ 10,056,000 $ 13,764,000 $ 17,146,000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Product &
technology......... 3,585,000 6,434,000 9,987,000 13,186,000 15,900,000 19,458,000 16,654,000
Sales & marketing.... 9,660,000 13,266,000 14,274,000 16,199,000 18,587,000 22,274,000 17,348,000
General &
administration..... 2,454,000 3,188,000 3,902,000 5,774,000 8,075,000 7,702,000 8,163,000
Restructuring
charges............ -- 1,023,000 590,000 -- -- -- 3,935,000
Depreciation and
amortization....... 474,000 1,170,000 1,684,000 3,172,000 4,544,000 7,289,000 8,120,000
Stock-based
compensation
expense............ 1,417,000 1,595,000 1,848,000 1,540,000 1,212,000 1,108,000 1,149,000
Impairment of
goodwill........... -- -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------
Loss from
operations......... $(15,996,000) $(22,796,000) $(26,667,000) $(30,874,000) $(38,262,000) $(44,067,000) $(38,223,000)
============ ============ ============ ============ ============ ============ ============

DEC 31,
2000
------------

Statement of Income
Data:
Revenues............. $ 20,062,000
------------
Product &
technology......... 15,658,000
Sales & marketing.... 21,585,000
General &
administration..... 7,803,000
Restructuring
charges............ --
Depreciation and
amortization....... 8,342,000
Stock-based
compensation
expense............ 1,050,000
Impairment of
goodwill........... 37,170,000
------------
Loss from
operations......... $(71,546,000)
============

LIQUIDITY AND CAPITAL RESOURCES

To date, we have financed our operations primarily through the sale of our
equity securities. As of December 31, 2000, we had $93.4 million in cash and
cash equivalents, a decrease of $180.7 million from December 31, 1999.

During the year ended December 31, 2000, we used $118.1 million in operating
activities, mostly related to our $204.6 million loss during 2000 which included
non-cash activities such as $56.5 million in impairments of goodwill and other
assets, $28.3 million in depreciation and amortization and $4.5 million in
non-cash charges related to stock option grants. During the year ended
December 31, 1999, we used $80.0 million in operating activities, mostly related
to our $90.7 million loss during 1999 which included non-cash activities such as
$6.5 million in depreciation and amortization and $6.4 million in non-cash
charges related to stock option grants. During the year ended December 31, 1998,
we used $30.7 million in operating activities, mostly related to our
$46.0 million loss during the period which included a $10.4 million in non-cash
charges related to stock option grants and $5.4 million in additional
liabilities.

For the year ended December 31, 2000, we used $66.5 million in investing
activities, including $4.1 million for investments and other long-term assets,
$47.3 million for fixed assets and $10.6 million in connection with acquisitions
and related costs. For the year ended December 31, 1999, we used $48.8 million
in investing activities, including $21.6 million for investments and other
long-term assets, $18.7 million for fixed assets and $6.4 million in connection
with acquisitions and related costs. Net cash used in investing activities was
$4.7 million for the year ended December 31, 1998. Net cash used in investing
activities during 1998 resulted primarily from the purchase of fixed assets.

Net cash provided by financing activities was $4.2 million for the year
ended December 31, 2000, $350.7 million for the year ended December 31, 1999,
and $88.1 million for the year ended December 31, 1998. In April and May 1999,
we completed the sale of 3,727,272 shares of our common stock for $41 million.
In May 1999, we raised approximately $110.4 million, net of underwriting
discounts and commissions and related expenses, from the initial public offering
of shares of our common stock. In October 1999, we raised approximately
$192.1 million net of underwriting discounts and commissions and related
expenses, from a follow-on public offering of our common stock. We obtained a
$12 million line of credit in 1999. Net cash provided by financing activities
during 1998 consisted primarily of proceeds from the sale of shares of our
preferred stock.

Our principal commitments consist of obligations outstanding under capital
and operating leases.

In March 1999, we obtained a line of credit for the acquisition of computer
equipment and furniture and fixtures. In November 2000, we borrowed
$2.0 million under this line of credit. At December 31, 2000, approximately
$4.3 million (of which $2.4 million is current) of long-term debt was
outstanding. Amounts outstanding are payable in monthly installments of
principal and interest of approximately $170,000, bear interest at approximately
13.6% per annum and are secured by certain computer equipment and furniture and
fixtures. No additional amounts are available to be borrowed under this line of
credit.

Our capital requirements depend on numerous factors, including market
acceptance of our services, the amount of resources we devote to investments in
the StarMedia network, marketing and selling our services, and promoting our
brand.

We have experienced a substantial increase in our capital expenditures and
operating lease arrangements since our inception, consistent with the growth in
our operations and staffing.

We believe that our current cash and cash equivalents will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures for
at least the next 12 months. If cash generated from operations is insufficient
to satisfy our liquidity requirements, we may seek to sell additional equity or
debt securities or establish an additional credit facility. The sale of
additional equity or convertible debt securities could result in additional
dilution to our stockholders. The incurrence of additional indebtedness would
result in increased fixed obligations and could result in operating covenants
that would restrict our operations. We cannot assure you that financing will be
available in amounts or on terms acceptable or favorable to us, if at all.

INFLATION AND FOREIGN CURRENCY EXCHANGE RATE LOSSES

To date, our results of operations have not been impacted materially by
inflation in countries we do business in. Although a substantial portion of our
revenues are denominated in U.S. dollars, an increasing percentage of our
revenues are denominated in foreign currencies. As a result, our revenues may be
impacted by fluctuations in these currencies and the value of these currencies
relative to the U.S. dollar. In addition, a portion of our monetary assets and
liabilities and our accounts payable and operating expenses are denominated in
foreign currencies. Therefore, we are exposed to foreign currency exchange
risks. Revenues derived from foreign currencies, however, historically have not
comprised a material portion of our revenues. As a result, we have not tried to
reduce our exposure to exchange rate fluctuations by using hedging transactions.
We may, however, choose to do so in the future. We may not be able to do this
successfully. Accordingly, we may experience economic loss and a negative impact
on earnings and equity as a result of foreign currency exchange rate
fluctuations.

RECENT ACCOUNTING PRONOUNCEMENTS

The Company continues to assess the effects of recently issued accounting
standards. The impact of all recently adopted and issued accounting standards
has been disclosed in the footnotes to the audited Consolidated Condensed
Financial Statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK

Our accounts receivable are subject, in the normal course of business, to
collection risks. We regularly assess these risks and have established policies
and business practices to protect against the adverse effects of collection
risks.

INTEREST RATE RISK

Our investments are classified as cash and cash equivalents with original
maturities of three months or less. Therefore, changes in the market's interest
rates do not affect the value of the investments as recorded by us.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to the financial statements listed under the heading
"(a)(1) Consolidated Financial Statements" of the Item 14 hereof, which
financial statements are incorporated herein by reference in response to this
Item 8.

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

Not Applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The response to this item is incorporated by reference from the information
in our proxy statement for the 2001 Annual Meeting of Stockholders to be mailed
to our stockholders on or about April 30, 2001.

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) 1. CONSOLIDATED FINANCIAL STATEMENTS.

The following consolidated financial statements of StarMedia Network, Inc.
and the Report of Independent Auditors thereon are included in Item 8 above:

CONSOLIDATED FINANCIAL STATEMENTS

PAGE NO.
--------

Report of Independent Auditors.............................. F-38
Consolidated Balance Sheets as of December 31, 1999 and
2000...................................................... F-39
Consolidated Statements of Operations for the years ended
December 31, 1998,
1999 and 2000............................................. F-40
Consolidated Statements of Changes in Stockholders'
(Deficit) Equity for the years ended December 31, 1998,
1999 and 2000............................................. F-41
Consolidated Statements of Cash Flows for the years ended
December 31, 1998,
1999 and 2000............................................. F-42
Notes to Consolidated Financial Statements.................. F-43
The following consolidated financial statement schedule of
StarMedia Network, Inc. is included in Item 14(a):
Schedule II: Valuation and qualifying accounts.............. F-61

All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.

2. FINANCIAL STATEMENT SCHEDULES.

See index to financial statements at page F-1.

3. EXHIBITS.

The following Exhibits are incorporated herein by reference or are filed
with this report as indicated below.

EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------

3.1 Amended and restated certificate of incorporation
(Incorporated by reference to exhibit 3.1 of StarMedia's
Registration Statement on Form S-1 No. 333-87169
("Registration Statement No. 333-87169")).

3.2 Amended and restated bylaws (Incorporated by reference to
exhibit 3.2 of Registration Statement No. 333-87169).

10.1 1997 stock option plan (Incorporated by reference to exhibit
10.1 of Registration Statement No. 333-87169).

10.2 1998 stock plan (Incorporated by reference to exhibit 10.2
of Registration Statement No. 333-87169).

10.3 Lease dated September 15, 1997 between Clemons Management
Corp. and StarMedia, as amended (Incorporated by reference
to exhibit 10.3 of Registration Statement No. 333-87169).

10.4 Amended and restated registration rights agreement
(Incorporated by reference to exhibit 10.4 of Registration
Statement No. 333-87169).

10.5 Amendment No. 1 to amended and restated registration rights
agreement (Incorporated by reference to exhibit 10.5 of
Registration Statement No. 333-87169).

10.6 Quota Purchase Agreement, dated as of April 13, 1999, by and
between StarMedia, StarMedia do Brasil Ltda., Quotaholders
of KD Sistemas de Informacao Ltda. and KD Sistemas de
Informacao Ltda. (Incorporated by reference to exhibit 10.7
of Registration Statement No. 333-87169).

10.7 Master Loan and Security Agreement No. 4231, dated as of
March 31, 1999, by and between StarMedia and Charter
Financial, Inc. (Incorporated by reference to exhibit 10.8
of Registration Statement No. 333-87169).

10.8 StarMedia 1999 Employee Stock Purchase Plan (Incorporated by
reference to exhibit 10.9 of Registration Statement
No. 333-87169).

10.9 Registration Rights Agreement between StarMedia and Hearst
Communications, Inc. dated as of April 30, 1999
(Incorporated by reference to exhibit 10.18 of Registration
Statement No. 333-87169).

10.10 Registration Rights Agreement between StarMedia and Reuters
Holding Switzerland SA dated as of April 30, 1999
(Incorporated by reference to exhibit 10.19 of Registration
Statement No. 333-87169).

10.11 Registration Rights Agreement between StarMedia and eBay
Inc. dated as of April 30, 1999 (Incorporated by reference
to exhibit 10.20 of Registration Statement No. 333-87169).

10.12 Registration Rights Agreement between StarMedia and
Europortal Holding S.A. dated as of April 30, 1999
(Incorporated by reference to exhibit 10.21 of Registration
Statement No. 333-74659).

10.13 Registration Rights Agreement between StarMedia and Critical
Path, Inc. dated as of May 3, 1999 (Incorporated by
reference to exhibit 10.22 of Registration Statement
No. 333-87169).

10.14 Registration Rights Agreement between StarMedia and
Europortal Holding S.A. dated as of May 5, 1999
(Incorporated by reference to exhibit 10.23 of Registration
Statement No. 333-87169).

10.15 Registration Rights Agreement dated as of May 4, 1999
between StarMedia and Geradons, S.L. (Incorporated by
reference to Exhibit 10.24 of Registration Statement
No. 333-87169).

10.16 Registration Rights Agreement between StarMedia and National
Broadcasting Company, Inc. dated as of May 4, 1999
(Incorporated by reference to exhibit 10.25 of Registration
Statement No. 333-87169).

10.17 Employment Agreement dated as of December 28, 2000 by and
between StarMedia and Fernando J. Espuelas.

10.18 Employment Agreement dated as of December 28, 2000 by and
between StarMedia and Jack C. Chen.

10.19 Employment Agreement dated as of December 28, 2000 by and
between StarMedia and Justin K. Macedonia.

10.20 Employment Agreement dated as of December 28, 2000 by and
between StarMedia and Steven J. Heller.

10.21 Loan Agreement, dated as of December 28, 2000 by and between
StarMedia and Fernando J. Espuelas.

10.22 Loan Agreement, dated as of December 28, 2000 by and between
StarMedia and Jack C. Chen.

10.23 Loan Agreement, dated as of December 28, 2000 by and between
StarMedia and Justin K. Macedonia.

10.24 Loan Agreement, dated as of December 28, 2000 by and between
StarMedia and Steven J. Heller.

10.25 Loan Agreement, dated as of December 28, 2000 by and between
StarMedia and Adriana J. Kampfner.

10.26 Employment Agreement dated as of September 26, 2000 by and
between StarMedia and Francisco A. Loureiro.

10.27 Promissory Note, dated as of May 23, 2000, issued by
Francisco Loureiro in favor of StarMedia.

10.28 Form of Rights Agreement (Incorporated by reference to
exhibit 10.28 of Registration Statement No. 333-87169).

10.29 StarMedia Network, Inc. 2000 Stock Incentive Plan
(Incorporated by reference to exhibit 10.1 of the
Registrants' Form 10-Q for the quarterly period ended June
30, 2000).

10.30 Amended and Restated Stock Purchase Agreement, dated as of
September 30, 2000, by and among Chase Equity Associates LP,
the Flatiron Fund 2000 LLC, Flatiron Associates II LLC and
Gratis 1, Inc.

10.31 Stock Purchase Agreement, dated as of December 22, 2000, by
and among Chase Equity Associates LP, the Flatiron Fund 2000
LLC, Flatiron Associates II LLC and Gratis 1, Inc.

10.32 Stock Purchase Agreement, dated as of January 31, 2000, by
and among StarMedia Network, Inc., Group MVS, S.A. de C.V.
Harry Moller Publicidad, S.A. de C.V. and the Representative
named therein (Incorporated by reference to exhibit 1.1 of
the Registrants' Form 8-K filed April 6, 2000).

10.33 Put and Call Agreement, dated as of September 28, 2000, by
and among StarMedia Network, Inc., Chase Equity Associates,
LP, the Flatiron Fund 2000 LLC, Flatiron Associates II LLC
and Gratis 1, Inc...........................................

10.34 Amendment No. 1 dated as of December 29, 2000, to the Put
and Call Agreement, dated as of September 28, 2000, by and
among StarMedia Network, Inc., Chase Equity Associates, LP,
the Flatiron Fund 2000 LLC, Flatiron Associates II LLC and
Gratis 1, Inc...............................................

21.1 List of Subsidiaries.

23.1 Consent of Ernst & Young LLP.

23.2 The Consent of the incorporation by reference of the report
of Deloitte & Touche in the Registration statement No.
333-79255 of the Registrant on Form S-8.

- ------------------------

(b) Reports on Form 8-K

On April 20, 2000, we filed a Current Report on Form 8-K in connection with
our acquisition of AdNet described elsewhere in this report.

On June 20, 2000, we filed a Current Report on Form 8-K/A in connection with
our acquisition of AdNet described elsewhere in this report.

See pages 37-61.

INDEX TO FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS PAGE NO.
- --------------------------------- --------

Report of Independent Auditors.............................. F-2

Consolidated Balance Sheets as of December 31, 1999 and
2000...................................................... F-3

Consolidated Statements of Operations for the years ended
December 31, 1998, 1999 and 2000.......................... F-4

Consolidated Statements of Changes in Stockholders'
(Deficit) Equity for the years ended December 31, 1998,
1999 and 2000............................................. F-5

Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1999 and 2000.......................... F-6

Notes to Consolidated Financial Statements.................. F-7

The following consolidated financial statement schedule of
StarMedia Network, Inc. is included in Item 14(a):

Schedule II: Valuation and qualifying accounts.............. S-2

F-1

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
StarMedia Network, Inc.

We have audited the accompanying consolidated balance sheets of StarMedia
Network, Inc. (the "Company") as of December 31, 1999 and 2000, and the related
consolidated statements of operations, changes in stockholders' (deficit) equity
and cash flows for each of the three years in the period ended December 31,
2000. These consolidated 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 the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
StarMedia Network, Inc. at December 31, 1999 and 2000 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States.

ERNST & YOUNG LLP

New York, New York
February 16, 2001

F-2

STARMEDIA NETWORK, INC.
CONSOLIDATED BALANCE SHEETS

DECEMBER 31,
-----------------------------
1999 2000
------------- -------------

ASSETS
Current assets:
Cash and cash equivalents................................. $ 274,089,000 $ 93,408,000
Accounts receivable, net of allowance for bad debts of
$458,000 (1999) and $1,959,000 (2000)................... 5,401,000 20,082,000
Unbilled receivables...................................... 2,174,000 6,131,000
Other current assets...................................... 5,506,000 7,680,000
------------- -------------
Total current assets........................................ 287,170,000 127,301,000
Fixed assets, net........................................... 23,160,000 55,569,000
Intangible assets, net of accumulated amortization of
$456,000 (1999) and $1,676,000 (2000)..................... 4,642,000 5,557,000
Goodwill, net of accumulated amortization of $2,622,000
(1999) and $2,435,000 (2000).............................. 18,513,000 6,582,000
Officers loans.............................................. -- 4,563,000
Other assets................................................ 22,586,000 16,091,000
------------- -------------
Total assets................................................ $ 356,071,000 $ 215,663,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 7,535,000 $ 20,737,000
Accrued expenses.......................................... 17,108,000 20,061,000
Loan payable, current portion............................. 1,602,000 2,462,000
Capital lease obligations, current portion................ 58,000 --
Deferred revenues......................................... 632,000 1,428,000
------------- -------------
Total current liabilities................................... 26,935,000 44,688,000
Loan payable, long term..................................... 2,380,000 1,902,000
Deferred rent............................................... 395,000 2,199,000
Stockholders' equity:
Preferred stock authorized 10,000,000 shares:
Series 1999A junior-non-voting convertible preferred
stock, $.001 par value 2,300,000 shares authorized,
58,140 shares issued and outstanding (1999 and 2000).
Common stock, $.001 par value, 200,000,000 shares
authorized, 64,151,283 shares issued and outstanding
(1999) and 66,927,883 shares issued and outstanding
(2000).................................................. 64,000 67,000
Common stock issuable..................................... -- 7,800,000
Additional paid-in capital................................ 484,465,000 516,311,000
Accumulated deficit....................................... (149,286,000) (353,867,000)
Deferred compensation..................................... (8,461,000) (2,636,000)
Other comprehensive loss.................................. (421,000) (801,000)
------------- -------------
Total stockholders' equity.................................. 326,361,000 166,874,000
------------- -------------
Total liabilities and stockholders' equity.................. $ 356,071,000 $ 215,663,000
============= =============

See accompanying notes.

F-3

STARMEDIA NETWORK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

YEAR ENDED DECEMBER 31,
-------------------------------------------
1998 1999 2000
------------ ------------ -------------

Revenues........................................... $ 5,758,000 $ 20,089,000 $ 61,028,000

Operating expenses:
Product and technology development............... 7,101,000 33,192,000 67,670,000
Sales and marketing.............................. 29,281,000 53,399,000 79,794,000
General and administrative....................... 4,810,000 15,318,000 31,743,000
Non-recurring charges............................ -- 1,613,000 3,935,000
Depreciation and amortization.................... 785,000 6,500,000 28,295,000
Stock-based compensation expense................. 10,421,000 6,400,000 4,519,000
Impairment of goodwill........................... -- -- 37,170,000
------------ ------------ -------------
Total operating expenses........................... 52,398,000 116,422,000 253,126,000
------------ ------------ -------------
Loss from operations............................... (46,640,000) (96,333,000) (192,098,000)

Other income (expense):
Impairment of other assets....................... -- -- (19,378,000)
Interest income.................................. 715,000 6,517,000 11,092,000
Loss in unconsolidated subsidiary................ -- -- (2,500,000)
Interest expense................................. (48,000) (626,000) (1,221,000)
Other expenses................................... -- -- (318,000)
------------ ------------ -------------
Loss before provision for other income taxes....... (45,973,000) (90,442,000) (204,423,000)
Provision for income taxes......................... -- (231,000) (158,000)
------------ ------------ -------------
Net loss........................................... (45,973,000) (90,673,000) (204,581,000)
Preferred stock dividends and accretion............ (4,536,000) (4,266,000) --
------------ ------------ -------------
Net loss available to common stockholders.......... $(50,509,000) $(94,939,000) $(204,581,000)
============ ============ =============
Basic and diluted net loss per common share........ $ (4.51) $ (2.31) $ (3.10)
============ ============ =============
Number of shares used in computing basic and
diluted net loss per share....................... 11,203,749 41,170,602 65,919,685
============ ============ =============

See accompanying notes.

F-4

STARMEDIA NETWORK, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000

COMMON STOCK PREFERRED STOCK ADDITIONAL
------------------------------------- ---------------------- PAID-IN ACCUMULATED
SHARES AMOUNT ISSUABLE SHARES AMOUNT CAPITAL DEFICIT
---------- ----------- ---------- -------- ----------- ------------ -------------

Balance at December 31, 1997..... 10,092,952 11,000 -- -- -- 433,000 (3,838,000)
Deferred compensation related to
stock options, net of
cancellations.................. 19,087,000
Amortization of deferred
compensation...................
Exercise of common stock
options........................ 380,000 45,000
Issuance of common stock --
WassNet S.L. .................. 1,052,382 1,000 93,000
Issuance of common stock --
Webcast Solutions.............. 784,198 1,000 35,000
Preferred stock dividends and
accretion...................... (4,536,000)
Net loss for the year............ (45,973,000)
Translation adjustment...........
Comprehensive loss...............
---------- ----------- ---------- ------ ----------- ------------ -------------
Balance at December 31, 1998..... 12,309,532 13,000 -- -- -- 19,693,000 (54,347,000)

Deferred compensation related to
stock options, net of
cancellations.................. 6,195,000
Amortization of deferred
compensation...................
Issuance of common stock, net of
offering costs................. 17,926,363 18,000 343,449,000
Shares issued for acquisition of
Servicios Interactivos
Limitada....................... 20,000 1,000,000
Issuance of common stock--Webcast
Solutions...................... 58,689 949,000
Shares issued for acquisition of
PageCell International......... 174,418 58,140 8,846,000
Shares issued for acquisition of
Paisas......................... 8,728 346,000
Conversion of redeemable
convertible preferred stock.... 31,996,667 31,000 100,728,000
Exercise of common stock
options........................ 1,618,729 2,000 2,009,000
Stock options issued for
services....................... 31,000
Transactions expenses related to
Wass Net, S.L. acquisition
payable by Wass Net
Shareholders................... 732,000
Shares issued pursuant to the
Employee Stock Purchase Plan... 38,157 487,000
Preferred stock dividends and
accretion...................... (4,266,000)
Net loss for the period.......... (90,673,000)
Translation adjustment...........
Comprehensive loss...............
---------- ----------- ---------- ------ ----------- ------------ -------------
Balance at December 31, 1999..... 64,151,283 64,000 -- 58,140 -- 484,465,000 (149,286,000)

Deferred compensation related to
stock options cancellations.... (1,306,000)
Amortization of deferred
compensation...................
Exercise of common stock
options........................ 1,482,009 1,000 3,002,000
Rescission of common stock option
exercises...................... (327,524) (307,000)
Shares issued pursuant to the
Employee Stock Purchase Plan... 132,638 1,154,000
Shares issued for acquisition of
Guia........................... 71,524 3,362,000
Shares issued for acquisition of
AdNet.......................... 1,417,953 2,000 25,941,000
Common stock issuable pursuant to
Gratis 1 loan guarantee........ 7,800,000
Net loss for the period.......... (204,581,000)
Translation adjustment...........
Comprehensive loss...............
---------- ----------- ---------- ------ ----------- ------------ -------------
Balance at December 31, 2000..... 66,927,883 $ 67,000 $7,800,000 58,140 -- $516,311,000 $(353,867,000)
========== =========== ========== ====== =========== ============ =============

OTHER
DEFERRED COMPREHENSIVE
COMPENSATION INCOME TOTAL
------------ ------------- -------------

Balance at December 31, 1997..... -- $ (3,394,000)
Deferred compensation related to
stock options, net of
cancellations.................. (19,087,000)
Amortization of deferred
compensation................... 10,421,000 10,421,000
Exercise of common stock
options........................ 45,000
Issuance of common stock --
WassNet S.L. .................. 94,000
Issuance of common stock --
Webcast Solutions.............. 36,000
Preferred stock dividends and
accretion...................... (4,536,000)
Net loss for the year............ (45,973,000)
Translation adjustment........... (32,000) (32,000)
-------------
Comprehensive loss............... (46,005,000)
----------- --------- -------------
Balance at December 31, 1998..... (8,666,000) (32,000) (43,339,000)
Deferred compensation related to
stock options, net of
cancellations.................. (6,195,000)
Amortization of deferred
compensation................... 6,400,000 6,400,000
Issuance of common stock, net of
offering costs................. 343,467,000
Shares issued for acquisition of
Servicios Interactivos
Limitada....................... 1,000,000
Issuance of common stock--Webcast
Solutions...................... 949,000
Shares issued for acquisition of
PageCell International......... 8,846,000
Shares issued for acquisition of
Paisas......................... 346,000
Conversion of redeemable
convertible preferred stock.... 100,759,000
Exercise of common stock
options........................ 2,011,000
Stock options issued for
services....................... 31,000
Transactions expenses related to
Wass Net, S.L. acquisition
payable by Wass Net
Shareholders................... 732,000
Shares issued pursuant to the
Employee Stock Purchase Plan... 487,000
Preferred stock dividends and
accretion...................... (4,266,000)
Net loss for the period.......... (90,673,000)
Translation adjustment........... (389,000) (389,000)
-------------
Comprehensive loss............... (91,062,000)
----------- --------- -------------
Balance at December 31, 1999..... (8,461,000) (421,000) 326,361,000
Deferred compensation related to
stock options cancellations.... 1,306,000
Amortization of deferred
compensation................... 4,519,000 4,519,000
Exercise of common stock
options........................ 3,003,000
Rescission of common stock option
exercises...................... (307,000)
Shares issued pursuant to the
Employee Stock Purchase Plan... 1,154,000
Shares issued for acquisition of
Guia........................... 3,362,000
Shares issued for acquisition of
AdNet.......................... 25,943,000
Common stock issuable pursuant to
Gratis 1 loan guarantee........ 7,800,000
Net loss for the period.......... (204,581,000)
Translation adjustment........... (380,000) (380,000)
-------------
Comprehensive loss............... (204,961,000)
----------- --------- -------------
Balance at December 31, 2000..... $(2,636,000) $(801,000) $ 166,874,000
=========== ========= =============

See accompanying notes.

F-5

STARMEDIA NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

YEAR ENDED DECEMBER 31,
--------------------------------------------
1998 1999 2000
------------ ------------- -------------

OPERATING ACTIVITIES
Net loss.................................................... $(45,973,000) $ (90,673,000) $(204,581,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 785,000 6,500,000 28,295,000
Impairment of goodwill and other assets................... 56,548,000
Provision for bad debts................................... 65,000 393,000 6,797,000
Amortization of stock based compensation.................. 10,421,000 6,400,000 4,519,000
Stock options issued for services......................... 31,000
Deferred rent expense..................................... 101,000 273,000 1,804,000
Transaction expenses related to Wass Net, S.L. ........... 732,000
Changes in operating assets and liabilities:
Accounts receivable..................................... (541,000) (7,305,000) (20,643,000)
Unbilled receivables.................................... (3,957,000)
Other assets............................................ (1,772,000) (4,853,000) (508,000)
Accounts payable and accrued expenses................... 5,448,000 8,672,000 12,789,000
Deferred revenues....................................... 795,000 (183,000) 824,000
------------ ------------- -------------
Net cash used in operating activities....................... (30,671,000) (80,013,000) (118,113,000)

INVESTING ACTIVITIES
Purchase of fixed assets.................................... (4,478,000) (18,661,000) (45,200,000)
Intangible assets........................................... (241,000) (2,094,000) (2,059,000)
Other assets................................................ (21,640,000) (4,140,000)
Due from officers........................................... (4,563,000)
Cash paid for acquisitions.................................. (6,411,000) (10,565,000)
------------ ------------- -------------
Net cash used in investing activities....................... (4,719,000) (48,806,000) (66,527,000)

FINANCING ACTIVITIES
Issuance of common stock.................................... 87,000 346,871,000 3,850,000
Issuance of redeemable convertible preferred stock, net of
related expenses.......................................... 88,125,000
Capital contribution--Wass Net, S.L. ....................... 51,000
Issuance of convertible subordinated notes.................. 6,000,000
Proceeds from long-term debt................................ 5,074,000 2,054,000
Repayment of long-term debt................................. (1,092,000) (1,672,000)
Repayment of convertible subordinated notes................. (6,000,000)
Loans (to) from stockholders................................ 9,000
Repayments (to) from stockholders........................... (67,000)
Payments under capital leases............................... (112,000) (171,000) (58,000)
------------ ------------- -------------
Net cash provided by financing activities................... 88,093,000 350,682,000 4,174,000
Effect of exchange rate changes on cash and cash
equivalents............................................... 1,000 (921,000) (215,000)
------------ ------------- -------------
Net increase/decrease in cash and cash equivalents.......... 52,704,000 220,942,000 (180,681,000)
Cash and cash equivalents, beginning of period.............. 443,000 53,147,000 274,089,000
------------ ------------- -------------
Cash and cash equivalents, end of period.................... $ 53,147,000 $ 274,089,000 $ 93,408,000
============ ============= =============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid............................................... $ 45,000 $ 581,000 $ 1,221,000
============ ============= =============
Income taxes paid........................................... $ 569,000
============ =============

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Accrued purchases of fixed assets and intangible assets... $ $ 5,151,000 $ 777,000
============ ============= =============
Accrued costs for acquisitions............................ $ $ 4,583,000 $ 8,481,000
============ ============= =============
Common stock issuable..................................... $ $ $ 7,800,000
============ ============= =============
Accrued costs related to issuance of common stock......... $ $ 43,000 $
============ ============= =============
Acquisition of fixed assets through capital leases........ $ 314,000 $ $
============ ============= =============

See accompanying notes.

F-6

STARMEDIA NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000

1. SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION AND DESCRIPTION OF BUSINESS

The accompanying consolidated financial statements include the accounts of
StarMedia Network, Inc. and its wholly-owned subsidiaries (collectively, the
"Company"). All intercompany account balances and transactions have been
eliminated in consolidation. StarMedia Network, Inc. was incorporated under
Delaware law in March 1996.

The Company is an Internet media company targeting Spanish- and
Portuguese-speaking markets worldwide. The Company's network consists of
interest-specific channels, extensive Web-based community features,
sophisticated search capabilities and access to online shopping in Spanish and
Portuguese. These channels cover topics of interest to Spanish and Portuguese
speakers online, including local and regional news, business and sports. The
Company promotes user affinity to the StarMedia community by providing tools and
services such as Spanish- and Portuguese-language e-mail, chat rooms, instant
messaging and personal homepages.

REVENUE RECOGNITION

The Company's revenues are derived principally from the sale of banner
advertisements, email campaigns and sponsorships, some of which also involve
some integration, design and coordination of the customer's content with the
Company's services, such as the placement of sponsor buttons in specific areas
of the Network. The sponsor buttons generally provide users with direct links to
sponsor homepages that exist within the Network which are usually focused on
selling sponsor merchandise and services to users of the Network. Advertising
revenues on both banner and sponsorship contracts, which range from one day to
multiple years, are recognized ratably in the period in which the advertisement
is displayed, provided that no significant Company obligations remain and
collection of the resulting receivable is probable. Company obligations
typically include guarantees of minimum number of "impressions." To the extent
minimum guaranteed impressions are not met, the Company defers recognition of
the corresponding revenues until the remaining guaranteed impression levels are
achieved. Revenue related to e-mail campaigns is recognized as the e-mails are
delivered. The Company also earns revenues on sponsorship contracts for fees
relating to the design, coordination, and integration of the customer's content.
Revenue related to the design, coordination and integration of the customers'
content are recognized ratably over the term of the contract or using the
percentage of completion method if the fee for such services is fixed. Several
of the Company's agreements contain multiple revenue elements. The Company
allocates the total agreement fee among each deliverable based on the fair value
of each of the deliverables.

A portion of the Company's revenues are from barter advertisements
(agreement whereby the Company trades advertisements on its Network in exchange
for advertisement from third parties). Barter advertising revenues and expenses
are recognized in accordance with Emerging Issues Task Force Issue No. 99-17,
"Accounting for Barter Advertising." Revenues from barter transactions are
recognized during the period in which the advertisements are displayed on the
Company's Network. Barter expense is recognized when the Company's
advertisements are run by the third-party, which is typically in the same period
when barter revenues is recognized. For the years ended December 31, 1998, 1999
and 2000, revenues derived from barter transactions, were approximately
$2,400,000, $5,500,000, and $7,200,000 respectively.

F-7

STARMEDIA NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenues related to consulting and technical services from time and material
contracts are recognized during the period in which the related services are
provided and revenue from fixed price contracts is recognized using the
percentage-of-completion method.

The Company also owns proprietary wireless software products, including SMS
and WAP technology. These platforms allow wireless devices, such as cellular
phones, to receive, send and access information. The Company either directly
licenses this technology to its customers or enters into application service
provider (ASP) agreements for the product's use over a specified period of time.
Licensing revenue is generally recognized upon delivery. ASP revenue is
recognized at predetermined rates based on monthly usage. Additional revenue for
transactional and user fees are also recognized based on monthly usage. If
additional professional services, such as installation, are required revenue for
such additional professional services is recognized at completion. The revenue
from any maintenance or support services included in a contract is recognized
ratably over the life of the contract.

Deferred revenues are primarily comprised of billings in excess of
recognized revenues relating to sponsorship and banner advertising contracts.

PRODUCT DEVELOPMENT

The Company's product development expenses consist of expenses incurred in
the classification and organization of listings within the Network and the
development of new production enhancements to existing products. Product
development costs are expensed as incurred or capitalized in accordance with
Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires that
costs incurred in the preliminary project and post implementation stages of an
internal use software project are expensed as incurred and that certain costs
incurred in the application development state of the project be capitalized.

In March 2000, the Emerging Issue Task Force issued its consensus on Issue
No. 00-2, "Accounting for Website Development Costs," (EITF 00-2). EITF 00-2
requires either capitalizing or expensing costs as incurred on specific Web site
development costs based on the nature of each cost. The adoption of EITF 00-2
did not have a material impact on the Company's financial position and results
of operations.

CASH AND CASH EQUIVALENTS

The Company considers all financial instruments with an original maturity of
three months or less to be cash equivalents. Such amounts are stated at cost
which approximates market value.

FIXED ASSETS

Fixed assets, including those acquired under capital leases, are stated at
cost and depreciated by the straight-line method over the estimated useful lives
of the assets, which range from three to five years. Leasehold improvements are
amortized over the lesser of the useful life of the asset or the remaining
period of the lease.

F-8

STARMEDIA NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS

Intangible assets consist of trademarks, trade names and the rights to use
certain technology, and are being amortized on a straight-line basis, generally
over a period of five years.

Goodwill consists of the excess of the purchase price paid over the tangible
net assets of acquired companies. Goodwill is amortized using the straight-line
method over three years. Amortization expense and accumulated amortization as of
December 31, 2000 and for the year then ended were approximately $13,612,000 and
$2,435,000, respectively. Amortization expense and accumulated amortization as
of December 31, 1999 and for the year then ended were approximately $2,622,000.

The Company assesses the recoverability of its goodwill and other intangible
assets by determining whether the unamortized balance can be recovered through
forecasted cash flows over its remaining life. If undiscounted forecasted cash
flows indicate that the unamortized amounts will not be recovered, an adjustment
will be made to reduce the net amounts to an amount consistent with forecasted
future cash flows discounted at the Company's incremental borrowing rate. Cash
flow forecasts are based on trends of historical performance and management's
estimate of future performance, giving consideration to existing and anticipated
competitive and economic conditions.

As of December 31, 2000, the Company determined that the fair market value
of certain acquired assets was below their respective carrying values (inclusive
of the related goodwill). As a result, the Company recorded a goodwill
impairment charge of $37,170,000. The Company also determined that certain
long-term assets, principally minority investments in other companies were
permanently impaired and recorded an additional impairment charge of
$19,378,000.

INCOME TAXES

The Company uses the liability method of accounting for income taxes,
whereby deferred income taxes are provided on items recognized for financial
reporting purposes over different periods than for income tax purposes.
Valuation allowances are provided when the expected realization of tax assets
does not meet a more likely than not criteria.

ADVERTISING COSTS

Advertising costs are expensed as incurred. For the years ended
December 31, 1998, 1999 and 2000, advertising expense amounted to approximately
$21,246,000, $29,076,000, and $33,131,000 respectively. For the years ended
December 31, 1998, 1999 and 2000, advertising expense includes approximately
$2,400,000, $5,500,000 and $7,200,000 of charges related to barter advertising
transactions.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
footnotes thereto. Actual results could differ from those estimates.

F-9

STARMEDIA NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION

The Company grants stock options generally for a fixed number of shares to
certain employees with an exercise price equal to the fair value of the shares
at the date of grant. The Company accounts for stock option grants in accordance
with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and, accordingly, recognizes compensation expense only if
the fair value of the underlying Common Stock exceeds the exercise price of the
stock option on the date of grant. As permitted by SFAS No. 123, the Company
continues to account for stock-based compensation in accordance with APB Opinion
No. 25 and has elected the pro forma disclosure alternative of SFAS No. 123 (See
Note 6).

COMPUTATION OF NET LOSS PER SHARE

The Company calculates earnings per share in accordance with SFAS No. 128,
"Computation of Earnings Per Share." Accordingly, basic earnings per share is
computed using the weighted average number of common shares outstanding during
the period. Dilutive shares consist of the incremental common shares issuable
upon the conversion of the Preferred Stock (using the if-converted method) and
shares issuable upon the exercise of stock options (using the treasury stock
method); such additional shares are excluded from the calculation if their
effect is anti-dilutive.

CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable. At December 31, 2000, the majority of cash and cash
equivalents were held by two different financial institutions. The Company's
sales are primarily to companies located in the United States and Latin American
region. The Company performs periodic credit evaluations of its customers'
financial condition and does not require collateral. Accounts receivable are
under stated contract terms and the Company provides for estimated credit losses
at the time of sale.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, accounts receivable, accounts payable and loan payable
approximate their fair values.

FOREIGN CURRENCY AND INTERNATIONAL OPERATIONS

The functional currency of the Company's active subsidiaries in Argentina,
Brazil, Chile, Mexico, Spain, Uruguay and Colombia is the local currency. The
financial statements of these subsidiaries are translated to U.S. dollars using
period-end rates of exchange for assets and liabilities, and average rates for
the period for revenues and expenses. Translation gains and losses are deferred
and accumulated as a component of stockholders' equity. The functional currency
of the Company's Venezuelan subsidiary, which is in a highly inflationary
economy, is the U.S. dollar. Accordingly, the U.S. dollar is the functional
currency, and monetary assets and liabilities are translated using the current
exchange rate in effect at the period-end date, while nonmonetary assets and
liabilities are translated at historical rates. Operations are generally
translated at the weighted average exchange rate in effect during the period.
The resulting foreign exchange gains and losses are recorded in the consolidated
statement of operations.

F-10

STARMEDIA NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

COMPREHENSIVE INCOME

The Company reports comprehensive income in accordance with SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes rules for the
reporting and display of comprehensive income and its components. SFAS No. 130
requires foreign currency translation adjustments to be included in other
comprehensive loss.

SEGMENT INFORMATION

The Company discloses information regarding segments in accordance with SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
SFAS No. 131 establishes standards for reporting of financial information about
operating segments in annual financial statements and requires reporting
selected information about operating segments in interim financial reports. The
Company operates in only one business segment.

RECLASSIFICATIONS

Certain reclassifications were made to the prior year's financial statements
to conform with the current year presentation.

2. FIXED ASSETS

Fixed assets consist of the following:

DECEMBER 31,
--------------------------
1999 2000
----------- ------------

Computer equipment................................ $23,544,000 $ 48,415,000
Furniture and fixtures............................ 966,000 3,181,000
Transportation equipment.......................... 96,000 80,000
Construction in progress.......................... 1,036,000 --
Leasehold improvements............................ 1,923,000 17,795,000
----------- ------------
27,565,000 69,471,000
Less accumulated depreciation and amortization.... (4,405,000) (13,902,000)
----------- ------------
$23,160,000 $ 55,569,000
=========== ============

3. STOCKHOLDERS' (DEFICIT) EQUITY

COMMON STOCK

In April and May 1999, a group of third party investors purchased an
aggregate of 3,727,272 shares of the Company's common stock at $11 per share, or
approximately $41,000,000, less fees and commissions of $1,640,000 paid by
issuing 149,091 shares of the Company's common stock. These investors were
subject to a one-year restriction on the sale or transfer of such shares, after
which such investors were granted certain registration rights.

F-11

STARMEDIA NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

3. STOCKHOLDERS' (DEFICIT) EQUITY (CONTINUED)
In May 1999, the Company completed its initial public offering ("IPO") and
realized proceeds of approximately $110,400,000, net of underwriting discounts
and commissions and related expenses, from the sale of 8,050,000 shares of its
common stock.

In May 1999, the Company issued 1,133,334 shares of its common stock in
connection with the Wass Net merger.

In June 1999, the Company issued 20,000 shares of its common stock in
connection with the acquisition of Servicios Interactivos Limitada valued at
$1,000,000.

In September 1999, the Company issued 842,887 shares of its common stock in
connection with its merger with Webcast Solutions, which was accounted for as a
pooling of interests.

In September 1999, the Company issued 174,418 shares of its common stock and
58,140 shares of junior non-voting convertible preferred stock in connection
with its acquisition of PageCell International, valued at approximately
$8,846,000.

In October 1999, the Company realized proceeds of approximately
$192,100,000, net of underwriting discounts and commissions and related
expenses, from the public offering of 6,000,000 shares of its common stock.

In November 1999, the Company issued 8,728 shares of its common stock in
connection with its acquisition of Paisas, valued at approximately $346,000.

In February 2000, the Company issued 71,524 shares of its common stock in
connection with its acquisition of Ola Turista, valued at approximately
$3,362,000.

In April 2000, the Company issued 469,577 shares of its common stock in
connection with its acquisition of AdNet, S. de R.L. de C.V. ("AdNet"), valued
at approximately $15,000,000. During 2000, the Company issued an additional
948,376 shares, valued at $10,943,000, of its common stock as additional
consideration related to AdNet meeting certain revenue targets specified in the
purchase agreement.

REDEEMABLE CONVERTIBLE PREFERRED STOCK

In February 1998, the Company sold 8,000,000 shares of Series B Redeemable
Convertible Stock (the "Series B Preferred") for $12,000,000, or $1.50 per
share. In August and September 1998, the Company sold 16,666,667 shares of
Series C Redeemable Convertible Preferred Stock (the "Series C Preferred") for
$80,000,000, or $4.80 per share. The Series A Redeemable Convertible Preferred,
Series B Preferred and the Series C Preferred (collectively, the "Preferred
Stock") were convertible into common stock on a one for one basis. The holders
of the Preferred Stock were entitled to the number of votes equal to the number
of common shares that could be obtained upon conversion on the date of the vote
and were entitled to a discretionary noncumulative dividend. No Preferred Stock
dividends had been declared or paid. At December 31, 1998 and at the date of
conversion, total cumulative dividends in arrears, that would be payable upon a
liquidation, were approximately $4,233,000 and $8,499,000, respectively.

The Preferred Stock was converted into 31,996,667 shares common stocks on a
one-for-one basis, upon the consummation of the IPO.

F-12

STARMEDIA NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

3. STOCKHOLDERS' (DEFICIT) EQUITY (CONTINUED)
JUNIOR NON-VOTING CONVERTIBLE PREFERRED STOCK

In connection with the PageCell International acquisition, the Company
issued 58,140 shares of Series 1999A, Junior Non-Voting Convertible Preferred
Stock (the "Series 1999A Preferred"). After the first anniversary date of the
issue of the Series 1999A Preferred, the Series 1999A Preferred is convertible
into common stock on a one for one basis subject to certain anti-dilution
provisions, at any time at the option of the holder.

CONVERTIBLE SUBORDINATED NOTES

In January 1998, the Company issued $4,000,000, 8% convertible subordinated
notes due at the earlier of the closing of the Series B Preferred financing, or
in July 1998. In August 1998 the Company issued $2,000,000 8% convertible
subordinated notes due at the earlier of the closing of the Series C Preferred
financing or on December 31, 1998. All amounts outstanding were repaid during
1998 in accordance with their terms.

WEBCAST

As of June 30, 1999 Webcast had 7,237,500 shares of common stock
outstanding. On July 1, 1999 Webcast Solutions issued 541,650 shares of
Series A Preferred Stock for $1.80 per share. The Series A Preferred Stock was
convertible into Webcast Solutions common stock at $1.80 per share at any time.
In connection with the Webcast Solutions Merger, all the outstanding Webcast
Solutions common stock and Series A Preferred Stock were exchanged for 842,887
shares of the Company's common stock.

4. ACQUISITIONS

In February 2000, the Company acquired Ola Turista Ltda. ("Ola Turista"),
the owner of Guia SP and Guia RJ, leading cultural and entertainment guides in
the cities of Sao Paulo and Rio de Janeiro, Brazil in exchange for 71,524 shares
of its common stock and $2,000,000 in cash. Pursuant to the purchase agreement,
StarMedia is obligated to pay additional consideration in the form of StarMedia
common stock, subject to Ola Turista meeting certain specified performance
targets. As of December 2000, $1,675,000 of such earnout has been accrued.

In April 2000, the Company acquired AdNet. S.A. de R.L. de C.V. ("AdNet"), a
leading Mexican search portal and Mexico's largest web directory. The Company
paid $5.0 million in cash and issued 469,577 shares of common stock to acquire
all of the outstanding equity of AdNet. Pursuant to the purchase agreement,
StarMedia is obligated to pay additional consideration in the form of StarMedia
common stock over a five year period, subject to AdNet meeting certain specified
performance targets. In 2000 an additional 948,376 shares, valued at $10,943,000
based on the fair market value of the common stock upon issuance, were issued as
additional consideration. An additional $1,464,000 has been accrued for targets
met in the fourth quarter of 2000.

In March 1999, the Company acquired all of the outstanding stock of Achei
Internet Promotion Ltda., ("Achei") a Brazilian company in exchange for cash of
$810,000.

In April 1999, the Company acquired all of the outstanding stock of KD
Sistemas de Informacao Ltda. ("KD Sistemas"), a Brazilian company, in exchange
for a cash payment of $5,000,000 at closing, $320,000 paid during 1999,
$3,490,000 during 2000 and additional estimated cash payments of up to

F-13

STARMEDIA NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

4. ACQUISITIONS (CONTINUED)
$4,890,000, in the aggregate, due in March 2001 and 2002 upon the achievement of
certain performance targets. The financial performance goals were met prior to
December 31, 1999 and approximately $4,500,000 was accrued as additional
goodwill at that time. The remaining $3,200,000, for which the performance
targets were also met, was contingent upon the continued employment of certain
key individuals. As such, during 2000, the Company recorded the remaining
$3,200,000 as compensation expense upon the completion of the required
employment period.

In June 1999, the Company acquired all of the outstanding stock of Servicios
Interactivos Limitada ("SIL") for 20,000 shares of the Company's common stock
valued at $1,000,000.

In September 1999, the Company purchased substantially all of the assets of
PageCell International Holdings, Inc. ("PageCell International"), a provider of
advanced mobile technologies and services, in exchange for 174,418 shares of
common stock and 58,140 shares of Series 1999A Junior Non-Voting Convertible
Preferred Stock, valued at approximately $8.8 million at the closing date and
additional equity consideration valued at up to $15,000,000 upon the achievement
of certain specified quarterly performance related targets through
December 2000. The actual additional equity consideration earned was
approximately $1,380,000, which was accrued at December 31, 2000.

The Company accounted for the aforementioned acquisitions under the purchase
method of accounting and the results of the operations have been included in the
financial statements of the Company from the respective dates of acquisition.
The excess purchase price over the fair value of the net assets acquired,
including expenses incurred by the Company, has been recorded as goodwill.

The following pro forma unaudited consolidated results of operations assumes
the consummation of Ola Turista and AdNet, KD Sistemas, and PageCell
International acquisitions as of January 1, 1999:

YEAR ENDED DECEMBER 31,
-----------------------------
1999 2000
------------- -------------

Revenues....................................... $ 23,229,000 $ 62,529,000
Net loss....................................... $ (97,355,000) $(205,534,000)
Net loss available for common shareholders..... $(101,621,100) $(205,534,000)
Basic and diluted net loss per share........... $ (2.44) $ (3.08)

The effects of the Achei, SIL and Paisas acquisitions were not included in
the proforma unaudited consolidated results of operations as they are not
material.

In May 1999, the Company acquired all of the outstanding stock of Wass Net,
a company organized under the laws of Spain. Wass Net became a wholly-owned
subsidiary of the Company and the Wass Net shareholders received 161.9 shares of
the Company's common stock for each outstanding Wass Net share. Accordingly, the
Company issued 1,133,334 shares of its common stock for all the outstanding
shares of Wass Net stock. Wass Net is a Spanish-language online community
offering e-mail, chat, classifieds, bulletin boards, home pages and search
capabilities. In connection with the merger, Wass Net recorded a one-time charge
of $773,000 for transaction costs and StarMedia recorded a one-time charge of
$294,000 in transaction costs.

In September 1999, Webcast Solutions merged with and into a newly formed
wholly-owned subsidiary of the Company (the "Webcast Solutions Merger"). Under
the terms of the Webcast

F-14

STARMEDIA NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

4. ACQUISITIONS (CONTINUED)
Solutions Merger, 842,887 shares of the Company's common stock were issued in
exchange for all of the outstanding WebcastSolutions common stock based on an
exchange ratio of .1084 shares of the Company's common stock for each share of
Webcast Solutions common stock. Webcast Solutions is a streaming media company
focused on the global delivery of audio, video and other Internet-based
interactive media. In connection with the Webcast Solutions Merger, the Company
recorded a one-time charge of $546,000 in transaction costs.

The Wass Net acquisition and Webcast Solutions Merger were each accounted
for as a pooling of interests. Combined and separate results of StarMedia,
Webcast Solutions and Wass Net during the periods preceding the acquisitions
were as follows:

WEBCAST
STARMEDIA WASS NET SOLUTIONS INTERCOMPANY COMBINED
------------ ----------- ----------- --------------- ------------

Year Ended December 31, 1999
Revenues........................ $ 19,601,000 $ 11,000 $ 499,000 $(22,000) $ 20,089,000
Net Loss........................ $(86,812,000) $(1,459,000) $(2,402,000) -- (90,673,000)

Year Ended December 31, 1998
Revenues........................ $ 5,329,000 $ 21,000 $ 411,000 $ (3,000) $ 5,758,000
Net Loss........................ $(45,886,000) $ (72,000) $ (15,000) -- $(45,973,000)

5. LOSS PER SHARE

The following tables set forth the computation of basic and diluted earnings
per share:

YEAR ENDED DECEMBER 31,
-------------------------------------------
1998 1999 2000
------------ ------------ -------------

Numerator:
Net loss......................................... $(45,973,000) $(90,673,000) $(204,581,000)
Preferred stock dividends and accretion.......... (4,536,000) (4,266,000) --
------------ ------------ -------------
Numerator for basic and diluted loss per
share--net loss available for common
stockholders................................... $(50,509,000) $(94,939,000) $(204,581,000)
============ ============ =============
Denominator:
Denominator for basic and dilutive loss per
share--weighted average shares................. 11,203,749 41,170,602 65,919,685
============ ============ =============
Basic and diluted net loss per share............. $ (4.51) $ (2.31) $ (3.10)
============ ============ =============

Pro forma unaudited net loss per share assuming the conversion of the
preferred stock at the beginning of the respective period was approximately
$(1.09) and $(1.68) for the years ended December 31, 1998 and 1999,
respectively.

Diluted net loss per share does not include the effect of options to
purchase 6,131,933, 11,860,970 and 23,716,014 shares of common stock at
December 31, 1998, 1999 and 2000, respectively. Diluted net loss per share for
the year ended December 31, 1998 also does not include the effect of 31,996,667

F-15

STARMEDIA NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

5. LOSS PER SHARE (CONTINUED)
shares of common stock issuable upon the conversion of Preferred Stock on an "as
if converted" basis, respectively, as the effect of their inclusion is
antidilutive.

6. STOCK OPTIONS

In January 1997, the Company adopted the 1997 Stock Option Plan, in
July 1998, the company adopted the 1998 Stock Option Plan and in March 2000, the
company adopted the 2000 Stock Incentive Plan (collectively, the "Option
Plans"). All options granted under the 1997 plan were cancelled, with the
exception of options to purchase 2,000,000 shares. The 1998 Stock Option Plan
provided for the authorization of 10,000,000 shares. In February 1999, an
additional 7,000,000 shares were added. An annual increase is to be added each
July 1 beginning with July 1, 2000 equal to the lesser of $4,000,000 or 4% of
the outstanding shares on that date. In July 2000 an additional 2,639,632 shares
were reserved for issuance pursuant to the 1998 Stock Option Plan. The 2000
Stock Incentive Plan provides for an initial authorization of 20,000,000 shares,
with an annual increase equal to the lesser of 4,000,000 shares or 5% of the
then outstanding shares. The Option Plans provide for the granting of incentive
stock options and non-qualified stock options to purchase common stock to
eligible participants. Options granted under the Option Plans are for periods
not to exceed ten years. The 2000 Stock Incentive Plan also provides for the
granting of stock appreciation rights, common stock and common stock equivalents
to eligible participants. In July 1998, approximately 1,400,000 non-qualified
options outstanding were exchanged for incentive stock options having generally
equivalent terms as the non-qualified options.

Options issued prior to February 1999 generally vest one-third after the
first year of service and ratably each month thereafter over the next two years.
Options issued beginning February 1999 generally vest one-fourth after the first
year of service and ratably each month thereafter over the next three years.
Certain options, including options to purchase 2,000,000 shares granted in
April 1998, options to purchase 1,500,000 shares granted in December 1998, and
options to purchase 2,000,000 shares granted in October 1999, were immediately
vested.

In connection with the granting of stock options in 1998 and the exchange of
non-qualified options to incentive stock options, the Company recorded deferred
compensation of approximately $19,087,000. In connection with the granting of
stock options in 1999, the Company recorded additional deferred compensation of
approximately $6,195,000. Deferred compensation is being amortized for financial
reporting purposes over the vesting period of the options. The amount recognized
as expense during the year ended December 31, 1998, 1999 and 2000 amounted to
approximately $10,421,000, $6,400,000 and $4,519,000 respectively.

In connection with the Webcast Solutions Merger, all the Webcast Solutions
options outstanding at the time of the merger were exchanged for options to
purchase 101,132 shares of the Company's common stock at an exchange ratio of
..1084 shares of the Company's common stock for each option outstanding.

F-16

STARMEDIA NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)

DECEMBER 31, 2000

6. STOCK OPTIONS (CONTINUED)

The following transactions occurred with respect to the Option Plans:

WEIGHTED AVERAGE
SHARES EXERCISE PRICE
----------- ----------------

Outstanding, December 31, 1997................... 1,804,933 .42
Granted.......................................... 6,792,000 .78
Canceled......................................... (2,085,000) .50
Exercised........................................ (380,000) .12
----------- ------
Outstanding, December 31, 1998................... 6,131,933 .81
Granted.......................................... 7,607,230 21.26
Canceled......................................... (259,464) 16.65
Exercised........................................ (1,618,729) 1.26
----------- ------
Outstanding, December 31, 1999................... 11,860,970 13.50
Granted.......................................... 16,340,050 14.16
Canceled......................................... (3,330,521) 25.01
Exercised, net of rescissions.................... (1,154,485) 2.34
----------- ------
Outstanding, December 31, 2000................... 23,716,014 $12.88
=========== ======

In December 2000, several employees of the Company were given the right to
rescind 327,524 options exercised earlier in the year. Such rescissions were
permitted to allow the employees to avoid adverse personal tax issues. Upon the
rescission of the option exercises, the employees returned the 327,524 shares to
the Company and the Company returned 327,524 options, with the original terms,
and the cash received upon exercise of the options. Such rescissions resulted in
$48,000 in expenses to the Company and the shares were returned to authorized
and unissued as of December 31, 2000.

The following table summarizes information concerning outstanding options at
December 31, 2000:

OPTION OUTSTANDING
----------------------------------
WEIGHTED AVERAGE
NUMBER REMAINING NUMBER
EXERCISE PRICE RANGE OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
- --------------------- ----------- ---------------- -----------

$ 0.50--$ 0.50 2,629,475 7.4 2,629,475
$ 1.60--$ 1.66 1,655,320 8.1 1,655,320
$ 3.00--$ 3.13 3,055,000 9.9 405,000
$ 4.88--$ 6.88 7,841,165 9.6 1,088,580
$11.00--$15.00 321,750 8.6 321,750
$18.00--$21.56 399,700 9.4 --
$29.18--$31.50 7,165,250 9.0 3,006,970
$35.43--$48.19 648,354 8.8 168,188
---------- ---------
23,716,014 9,275,283
========== =========

The weighted average fair value of options granted during the years ended
December 31, 1998, 1999 and 2000 was $3.04, $13.32, and $12.31 respectively.

F-17

STARMEDIA NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)

DECEMBER 31, 2000

6. STOCK OPTIONS (CONTINUED)
Pro forma information regarding net loss is required by SFAS No. 123 which
also requires that the information be determined as if the Company has accounted
for its stock options under the fair value method of the statement. The fair
value for these options was estimated using the minimum value method prior to
the Company's IPO and the Black-Scholes option pricing model thereafter with the
following assumptions:

YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1999 2000
--------- -------- --------

Average risk-free interest rate............................. 4.44-5.70% 5.00% 4.75%
Dividend yield.............................................. 0.0% 0.0% 0.0%
Average life................................................ 5 years 5 years 4 years
Volatility.................................................. -- .70 1.30

Because the determination of fair value of all options granted after the
Company became a public entity include an expected volatility factor in addition
to the factors described in the preceding paragraph, the above results may not
be representative of future periods.

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

The Company's pro forma information is as follows:

YEAR ENDED DECEMBER 31,
--------------------------------------------
1998 1999 2000
------------ ------------- -------------

Pro forma net loss available to
common stockholders............. $(51,327,000) $(136,827,000) $(273,058,000)
Pro forma basic and diluted loss
per share....................... $ (4.58) $ (3.32) $ (4.14)

In May 1999, the Board of Directors approved the 1999 Employee Stock
Purchase Plan ("ESPP"). The ESPP allows eligible employees to purchase shares of
common stock of the Company through payroll deductions at 85% of the fair market
value during specific purchase periods, as defined. A total of 1,500,000 shares
of common stock has been reserved for issuance under this plan. During the year
ended December 31, 1999, 38,157 shares of common stock were issued to employees
for total proceeds of $487,000. During the year ending December 31, 2000,
132,638 shares of common stock were issued to employees for total proceeds of
$1,154,000.

7. INCOME TAXES

The income tax provision of $231,000 and $158,000 for the years ended
December 31, 1999 and 2000, respectively, is comprised of foreign income taxes.

F-18

STARMEDIA NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)

DECEMBER 31, 2000

7. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. At December 31, 1999 and
2000, significant components of the Company's deferred tax assets and
liabilities are as follows:

DECEMBER 31,
-------------------------
1999 2000
----------- -----------

Federal net operating loss carryforward............ $32,057,000 $79,882,000
Depreciation and amortization...................... 322,000 (1,360,000)
Deferred rent...................................... 179,000 1,121,000
Restructuring charges.............................. 407,000
Other.............................................. 234,000 2,137,000
----------- -----------
32,792,000 82,187,000
Valuation allowance................................ (32,792,000) (82,187,000)
----------- -----------
$ -- $ --
=========== ===========

For US Federal income tax purposes, at December 31, 2000 the Company had net
operating loss carryforwards of approximately $180,000,000 which expire from
2011 through 2020. A valuation allowance has been recognized to fully offset the
deferred tax assets, as it has been determined that it is more likely than not
that all or a portion of the deferred tax assets may not be realizable.

The reconciliation of the U.S. federal statutory rate to the effective tax
rate for the years ended December 31, 1998, 1999 and 2000 is as follows:

YEAR ENDED DECEMBER
31,
------------------------------------
1998 1999 2000
-------- -------- --------

U.S. statutory rate..................................... (35%) (35%) (35%)
Foreign losses with no U.S. benefit..................... 2 10 11
Expenses not deductible for U.S. tax purposes........... 8 2 9
U.S. losses with no benefit............................. 24 23 15
Foreign taxes........................................... -- 1 1
Other................................................... 1 -- --
--- --- ---
Effective tax rate...................................... -% 1% 1%
=== === ===

8. LONG-TERM DEBT

At December 31, 2000, approximately $4.3 million was outstanding under the
company's computer equipment, furniture and fixture credit line. Amounts
outstanding are payable in monthly installments of principal and interest of
approximately $170,000, bear interest at approximately 13.6% per annum and are
secured by certain of the Company's computer equipment and furniture and
fixtures. At December 31, 2000, no additional borrowings were available under
the credit line.

F-19

STARMEDIA NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)

DECEMBER 31, 2000

8. LONG-TERM DEBT (CONTINUED)
At December 31, 2000, the aggregate amounts of long-term debt due during the
next three years are as follows:

YEAR ENDING DECEMBER 31,
- ------------------------

2001........................................................ $2,462,000
2002........................................................ 1,240,000
2003........................................................ 662,000
----------
$4,364,000
==========

9. ACCRUED EXPENSES

Accrued expenses consist of the following:

YEAR ENDED
DECEMBER 31,
-------------------------
1999 2000
----------- -----------

Product and technology development................. $ 1,655,000 $ 1,173,000
Sales and marketing................................ 3,164,000 4,854,000
General and administrative......................... 1,927,000 3,548,000
Accrued fixed asset and intangible purchases....... 5,068,000 777,000
Acquisitions related expenses and earn-outs........ 5,151,000 9,499,000
Other.............................................. 143,000 210,000
----------- -----------
$17,108,000 $20,061,000
=========== ===========

10. COMMITMENTS

OPERATING LEASES

The Company rents office space under noncancelable lease agreements. The
minimum annual rental commitments under noncancelable operating leases that have
initial or remaining terms in excess of one year as of December 31, 2000 are as
follows:

Year Ended December 31
- ------------------------------------------------------------
2001........................................................ $ 5,330,000
2002........................................................ 4,882,000
2003........................................................ 4,938,000
2004........................................................ 4,877,000
Thereafter.................................................. 40,111,000
-----------
$60,138,000
===========

Rent expense amounted to approximately $392,000, $1,633,000 and $7,177,000
for the years ended December 31, 1998, 1999 and 2000, respectively.

F-20

STARMEDIA NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

11. LETTERS OF CREDIT

The Company has entered into several letter of credit arrangements with
banks in connection with an office lease agreement, the KD Sistemes acquisition
and the Gratis1 AT&T guarantee (see note 16). At December 31, 2000 the amount of
the letters of credit, in the aggregate, is $12,030,000 which is fully secured
by an equal amount of cash which is restricted as to its use and included in
non-current other assets.

12. RETIREMENT PLAN

The Company has a 401(k) plan that covers its eligible domestic employees.
The plan does not require a matching contribution by the Company.

13. SIGNIFICANT CUSTOMERS, GEOGRAPHICAL CONCENTRATION AND SEGMENT REPORTING

In the year ended December 31, 2000, no advertiser accounted for greater
than 10% of total revenues. For the year ended December 31, 1999, no advertiser
accounted for greater than 10% of our revenue. For the year ended December 31,
1998, two customers each accounted for approximately 21% and 14% of the
Company's total revenue.

Geographical information is as follows:

1998 1999 2000
----------------------- ------------------------- -------------------------
LONG-LIVED LONG-LIVED LONG-LIVED
REVENUE ASSETS REVENUE ASSETS REVENUE ASSETS
---------- ---------- ----------- ----------- ----------- -----------

United States........ $5,454,000 $4,572,000 $12,477,000 $19,091,000 $31,654,000 $46,396,000
Latin America........ 304,000 906,000 7,612,000 4,069,000 29,374,000 9,173,000
---------- ---------- ----------- ----------- ----------- -----------
Consolidated Totals.. $5,758,000 $5,478,000 $20,089,000 $23,160,000 $61,028,000 $55,569,000
========== ========== =========== =========== =========== ===========

The Company's revenues are allocated to the country in which the invoice for
the related service is generated. Although most invoices are issued to customers
in the same country in which the invoice is generated, some or all of the
related service may be delivered in or targeted to users in another country.

14. DUE FROM OFFICERS

During the year ended December 31, 2000, the Company provided loans to
certain employees. Balances outstanding at December 31, 2000 are as follows:

Due from the Chairman and Chief Executive Officer, bearing
interest at 6.75%......................................... $ 649,000
Due from the Chief Financial Officer, bearing interest at
7.0%, up to $500,000 of loan balance and interest will be
forgiven by the Company ratably over three years.......... 1,991,000
Due from President, StarMedia de Mexico and President,
Global Sales, bearing interest at 7.0%, due in December
2001...................................................... 1,058,000
Due from the Chief Operating Officer, bearing interest at
10%, due on May 22, 2001.................................. 500,000
Due from the Senior Vice President, General Counsel, bearing
interest at 7.0%, up to $500,000 of loan balance and
interest will be forgiven by the Company ratably over
three years............................................... 365,000
----------
$4,563,000
==========

F-21

STARMEDIA NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

14. DUE FROM OFFICERS (CONTINUED)
These loans are secured to the extent permitted by Regulation U under the
Securities Exchange Act of 1934, as amended, and are otherwise non-recourse to
the borrower. Under the respective terms of their loan and employment
agreements, the loans provided to the Chairman and Chief Executive Officer, the
Chief Financial Officer, and the Senior Vice President, General Counsel will
become due and payable within 30 days if the Company terminates their employment
for cause or they terminate their employment without good reason, or within
60 days if their employment is terminated due to disability. The Company will
forgive the loan to the Chairman and Chief Executive Officer in full if the
Company terminates his employment without cause or he terminates his employment
with good reason, or in the event of a change in control of the Company. In the
case of the Chief Financial Officer or the Senior Vice President, General
Counsel, the Company will forgive half of the loan amounts made if the Company
terminates their employment without cause or they terminate their employment
with good reason. The loan provided to the President, StarMedia de Mexico and
President, Global Sales becomes due and payable within 30 days of the
termination, for any reason, of her employment with the Company. Loans that are
intended to be forgiven over the term of employment are being charged to
compensation expense on a straight-line basis over the forgiveness period.

15. RESTRUCTURING CHARGE

In September 2000, the Company recorded a one-time charge of $3,935,000
associated with the integration of acquisitions and a company-wide realignment
of business operations. As of December 31, 2000 the Company had incurred
$3,095,000 of related expenses.

16. RELATED PARTIES

GRATIS1

During 2000 the Company acquired a non-controlling 50% interest in Gratis1
("G1"), which was subsequently reduced to approximately 48%. G1 was formed to
provide free unlimited internet access to users in Latin America. The owners of
G1 also included Chase Equity Associates, The Flatiron Fund 2000 LLC, the
Flatiron Associates II LLC and CMGI, among others. The Company accounted for its
investment in G1 under the equity method of accounting and during the second
quarter of 2000, the Company's share of equity losses in G1 exceeded its
investment basis of $2.5 million and the investment was written-off.

Chase Equity Associates, The Flatiron Fund 2000 LLC and the Flatiron
Associates II LLC (the "Lenders") purchased debt securities from G1 in an
aggregate amount of $17,300,000. Approximately $10,300,000 of such securities
were backed by a limited guaranty by the Company, payable in its common stock.
In January 2001, G1 ceased operations and in February 2001, the Company issued
to the Lenders common stock with a market value of approximately $4,500,000
pursuant to the guaranty of $7,000,000 of such securities. The Lenders have not
yet requested payment under the guaranty with respect to the remaining
$3,300,000 of such debt securities, however the Company estimates that it will
issue additional common stock with a market value of approximately $3,300,000 in
connection therewith. Accordingly, at December 31, 2000, the Company has accrued
$7,800,000. With respect to the remaining $7,000,000 of such debt securities, in
the event of a change of control of the Company, the Lenders would have the
right to put (and the Company would have a corresponding right to call) such
securities to the Company for shares of its common stock or merger
consideration, as the case

F-22

STARMEDIA NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

16. RELATED PARTIES (CONTINUED)
may be, at their fair market value for the face amount of such debt securities
plus a 25% annualized return.

During the third quarter of 2000, an agreement between the Company and AT&T
Global Network Services (AT&T) to provide Internet access services in Argentina,
Brazil, Chile, Colombia and Mexico was assigned to G1. As of December 31, 2000
AT&T was entitled to draw upon a $1.8 million letter of credit, guaranteed by
StarMedia, in the event G1 fails to perform under this agreement. Despite the
status of G1, no action to date has been taken by AT&T.

During 2000, the Company generated approximately $2.6 million of advertising
revenue and $1.4 million of software and consulting services revenue from G1.

17. LITIGATION

In December 2000, a consulting company filed suit against the Company
claiming unpaid fees of approximately $2,322,000. The Company has denied all
material allegations since, among other things, the services were rendered to an
unfunded subsidiary and the consulting company was notified that the Company
would not be liable for such fees. Management believes that the above matter
will be resolved without any material adverse impact to the Company's financial
position, results of operations or cash flows.

The Company is subject to legal proceedings and claims in the ordinary
course of business from time to time, including claims of alleged infringement
of trademarks, copyrights and other intellectual property rights, and a variety
of claims arising in connection with our e-mail, message boards and other
communications and community features, such as claims alleging defamation and
invasion of privacy. At this time, in the opinion of management, there are no
pending claims, including the above-mentioned lawsuit, the outcome of which are
expected to result in a material adverse effect or the consolidated financial
position or results of operations of the Company.

F-23

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, StarMedia Network, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on this 30th day of March 2001.

STARMEDIA NETWORK, INC.

By: /s/ FERNANDO J. ESPUELAS
-----------------------------------------
Fernando J. Espuelas
CHIEF EXECUTIVE OFFICER

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 30, 2001:

SIGNATURE TITLE(S)
--------- --------

Chief Executive Officer and
/s/ FERNANDO J. ESPUELAS Chairman of the Board of
------------------------------------------- Directors (Principal
Fernando J. Espuelas Executive Officer)

/s/ JACK C. CHEN
------------------------------------------- President and Director
Jack C. Chen

/s/ STEVEN J. HELLER Chief Financial Officer
------------------------------------------- (Principal Financial and
Jack C. Chen Accounting Officer)

/s/ DOUGLAS M. KARP
------------------------------------------- Director
Douglas M. Karp

/s/ MARIE-JOSEE KRAVIS
------------------------------------------- Director
Marie-Josee Kravis

/s/ GERARDO M. ROSENKRANZ
------------------------------------------- Director
Gerardo M. Rosenkranz

/s/ SUSAN L. SEGAL
------------------------------------------- Director
Susan L. Segal

/s/ FREDERICK R. WILSON
------------------------------------------- Director
Frederick R. Wilson

I-1

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
StarMedia Network, Inc.

We have audited the consolidated financial statements of StarMedia
Network, Inc., as of December 31, 1999 and 2000, and for each of the three years
in the period ended December 31, 2000, and have issued our report thereon dated
February 16, 2001. Our audits also included the financial statement schedule
listed in Item 14(a) of this Annual Report. This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.

/s/ ERNST & YOUNG LLP

New York, New York
February 16, 2001

S-1

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
STARMEDIA NETWORK, INC.

CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS-- DEDUCTIONS-- END
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
----------- ---------- ---------- ---------- ------------ ----------

YEAR ENDED DECEMBER 31, 2000
Reserves and allowances deducted from
asset accounts:
Allowance for uncollectible accounts.... $458,000 $6,797,000 $ -- $5,296,000 $1,959,000

YEAR ENDED DECEMBER 31, 1999
Reserves and allowances deducted from
asset accounts:
Allowance for uncollectible accounts.... $ 65,000 $ 393,000 $ -- $ -- $ 458,000

YEAR ENDED DECEMBER 31, 1998
Reserves and allowances deducted from
asset accounts:
Allowance for uncollectible accounts.... $ 65,000 $ -- $ -- $ 65,000

S-2