UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2009

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

MercadoLibre, Inc.

Delaware		98-0212790
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification Number)

Tronador 4890, 8 ^th Floor
Buenos Aires, C1430DNN, Argentina
(Address of registrant’s principal executive offices)

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes o No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a small reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

44,073,967 shares of the issuer’s common stock, $0.001 par value, outstanding as of May 1, 2009.

 

 

MERCADOLIBRE, INC.
INDEX TO FORM 10-Q

PART I. FINANCIAL INFORMATION			3
Item 1 — Unaudited Condensed Consolidated Financial Statements			3
Condensed Consolidated Balance Sheet as of March 31, 2009 and December 31, 2008			3
Condensed Consolidated Statements of Income for the three-month periods ended March 31, 2009 and 2008			4
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three-month periods ended March 31, 2009 and 2008			5
Condensed Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2009 and 2008			7
Notes to Condensed Consolidated Financial Statements			9
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations			28
Item 3 — Qualitative and Quantitative Disclosure About Market Risk			43
Item 4 — Controls and Procedures			45
PART II. OTHER INFORMATION			46
Item 1 — Legal Proceedings			46
Item 1A — Risk Factors			50
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds			51
Item 6 — Exhibits			52
Exhibit 10.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I. FINANCIAL INFORMATION

Item 1 — Unaudited Condensed Consolidated Financial Statements

MercadoLibre, Inc.

Condensed Consolidated Balance Sheets

As of March 31, 2009 and December 31, 2008

		March 31,				December 31,
		2009				2008
		(Unaudited)				(Audited)
Assets
Current assets:
Cash and cash equivalents			17,006,309			$	17,474,112
Short-term investments			29,354,094				31,639,400
Accounts receivable, net			3,481,627				3,856,392
Funds receivable from customers			3,209,827				2,322,416
Prepaid expenses			804,176				426,869
Deferred tax assets			1,118,510				1,628,871
Other assets			2,299,824				2,953,164
Total current assets			57,274,367				60,301,224
Non-current assets:
Long-term investments			13,763,469				9,218,153
Property and equipment, net			6,730,431				5,940,160
Goodwill and intangible assets, net			71,431,003				72,911,546
Deferred tax assets			12,708				14,270
Other assets			11,686,512				8,353,396
Total non-current assets			103,624,123				96,437,525
Total assets		$	160,898,490			$	156,738,749
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable and accrued expenses		$	17,877,233			$	16,941,173
Funds payable to customers			16,034,604				14,727,891
Social security payable			3,538,167				4,387,943
Taxes payable			4,234,491				4,989,704
Loans payable and other financial liabilities			18,490,600				14,963,421
Provisions			565,653				299,753
Total current liabilities			60,740,748				56,309,885
Non-current liabilities:
Social security payable			1,144,606				339,854
Loans payable			—				3,050,061
Deferred tax liabilities			2,370,161				2,556,120
Other liabilities			1,116,395				1,058,848
Total non-current liabilities			4,631,162				7,004,883
Total liabilities		$	65,371,910			$	63,314,768
Commitments and contingencies (Note 9)
Shareholders’ equity:
Common stock, $0.001 par value, 110,000,000 shares authorized, 44,073,967 and 44,070,367 shares issued and outstanding at March 31, 2009 and December 31, 2008, respectively			44,074				44,071
Additional paid-in capital			119,904,615				119,807,007
Accumulated deficit			(10,161,080	)			(15,552,256	)
Accumulated other comprehensive loss			(14,261,029	)			(10,874,841	)
Total shareholders’ equity			95,526,580				93,423,981
Total liabilities and shareholders’ equity		$	160,898,490			$	156,738,749

The accompanying notes are an integral part of these condensed consolidated financial statements.

MercadoLibre, Inc.

Condensed Consolidated Statements of Income

For the three-month periods ended March 31, 2009 and 2008

		Three months ended March 31,
		2009				2008
		(Unaudited)
Net revenues		$	32,322,501			$	28,840,730
Cost of net revenues			(6,633,986	)			(6,018,281	)
Gross profit			25,688,515				22,822,449
Operating expenses:
Product and technology development			(2,633,419	)			(1,744,511	)
Sales and marketing			(10,216,177	)			(9,214,659	)
General and administrative			(6,071,375	)			(4,947,604	)
Compensation Cost related to acquisitions (Note 4)			—				(373,473	)
Total operating expenses			(18,920,971	)			(16,280,247	)
Income from operations			6,767,544				6,542,202
Other income (expenses):
Interest income and other financial gains			929,663				749,354
Interest expense and other financial charges			(2,510,184	)			(1,362,800	)
Foreign currency gain / (loss)			1,875,486				(988,715	)
Net income before income / asset tax expense			7,062,509				4,940,041
Income / asset tax expense			(1,671,333	)			(2,872,364	)
Net income		$	5,391,176			$	2,067,677

		Three months ended March 31,
		2009				2008
Basic EPS
Basic net income per common share		$	0.12			$	0.05
Weighted average shares			44,069,134				44,227,460
Diluted EPS
Diluted net income per common share		$	0.12			$	0.05
Weighted average shares			44,130,866				44,368,011

The accompanying notes are an integral part of these condensed consolidated financial statements.

MercadoLibre, Inc.

Condensed Consolidated Statements of Changes in Shareholders’ Equity
For the three-month periods ended March 31, 2009 and 2008

																										Accumulated
														Additional												other
		Comprehensive				Common stock								paid-in				Treasury				Accumulated				comprehensive
		income				Shares				Amount				capital				Stock				deficit				income (loss)				Total
Balance as of December 31, 2007							44,226,563				44,227			$	121,890,138			$	—			$	(34,363,917	)		$	4,102,691			$	91,673,139
Stock options exercised							938				1				4,501				—				—				—				4,502
Stock-based compensation — stock options							—				—				1,224				—				—				—				1,224
Stock-based compensation — restricted shares							—				—				20,075				—				—				—				20,075
Net income		$	2,067,677				—				—				—				—				2,067,677				—				2,067,677
Currency translation adjustment			920,164				—				—				—				—				—				920,164				920,164
Unrealized net gains on investments			40,022				—				—				—				—				—				40,022				40,022
Realized net gain on investments			(91,989	)			—				—				—				—				—				(91,989	)			(91,989	)
Comprehensive income		$	2,935,874
Balance as of March 31, 2008							44,227,501			$	44,228			$	121,915,938			$	—			$	(32,296,240	)		$	4,970,888			$	94,634,814
Stock options exercised and restricted shares issued							92,566				93				78,494				—				—				—				78,587
Stock-based compensation — stock options							—				—				3,495				—				—				—				3,495
Stock-based compensation — restricted shares							—				—				85,485				—				—				—				85,485
Stock -based compensation LTRP							—				—				321,568				—				—				—				321,568
Repurchase of Treasury Stock							—				—				—				(2,598,223	)			—				—				(2,598,223	)
Retirement of Treasury Stock							(249,700	)			(250	)			(2,597,973	)			2,598,223				—				—				—
Net income		$	16,743,984				—				—				—				—				16,743,984				—				16,743,984
Currency translation adjustment			(15,843,448	)			—				—				—				—				—				(15,843,448	)			(15,843,448	)
Unrealized net gains on investments			(36,380	)			—				—				—				—				—				(36,380	)			(36,380	)
Realized net gain on investments			34,099				—				—				—				—				—				34,099				34,099
Comprehensive income		$	898,255
Balance as of December 31, 2008						$	44,070,367			$	44,071			$	119,807,007			$	—			$	(15,552,256	)		$	(10,874,841	)		$	93,423,981

The accompanying notes are an integral part of these condensed consolidated financial statements.

MercadoLibre, Inc.

Condensed Consolidated Statements of Changes in Shareholders’ Equity

For the three-month periods ended March 31, 2009 and 2008

																										Accumulated
														Additional												other
		Comprehensive				Common stock								paid-in				Treasury				Accumulated				comprehensive
		income				Shares				Amount				capital				Stock				deficit				income (loss)				Total
Balance as of December 31, 2008							44,070,367			$	44,071			$	119,807,007			$	—			$	(15,552,256	)		$	(10,874,841	)		$	93,423,981
Stock-based compensation — stock options							—				—				436				—				—				—				436
Stock-based compensation — restricted shares							—				—				16,933				—				—				—				16,933
Stock -based compensation LTRP							3,600				3				80,239				—				—				—				80,242
Net income		$	5,391,176				—				—				—				—				5,391,176				—				5,391,176
Currency translation adjustment			(3,382,545	)			—				—				—				—				—				(3,382,545	)			(3,382,545	)
Realized net gain on investments			(3,643	)			—				—				—				—				—				(3,643	)			(3,643	)
Comprehensive income		$	2,004,988
Balance as of March 31, 2009							44,073,967			$	44,074			$	119,904,615			$	—			$	(10,161,080	)		$	(14,261,029	)		$	95,526,580

The accompanying notes are an integral part of these condensed consolidated financial statements.

MercadoLibre, Inc.

Condensed Consolidated Statements of Cash Flow

For the three-month periods ended March 31, 2009 and 2008

		Three months ended March 31,
		2009				2008
		(Unaudited)
Cash flows from operations:
Net income		$	5,391,176			$	2,067,677
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			956,491				707,450
Interest expense			234,294				—
Realized gains on investments			(365,117	)			(555,455	)
Unrealized gains on investments			—				(82,368	)
Stock-based compensation expense — stock options			436				1,224
Stock-based compensation expense — restricted shares			16,933				20,075
LTRP accrued compensation			205,251				—
Deferred income taxes			462,974				(495,224	)
Changes in assets and liabilities, excluding the effect of acquisitions:
Accounts receivable			(592,602	)			292,236
Funds receivable from customers			(908,809	)			3,880,478
Prepaid expenses			(393,388	)			(3,673,183	)
Other assets			(2,465,124	)			273,814
Accounts payable and accrued expenses			613,690				3,533,141
Funds payable to customers			1,322,085				(141,227	)
Provisions			296,001				(383,137	)
Deferred tax liabilities			(185,959	)			1,670,766
Other liabilities			(78,893	)			(217,596	)
Net cash provided by operating activities			4,509,439				6,898,671
Cash flows from investing activities:
Purchase of investments			(33,656,429	)			(48,626,371	)
Proceeds from sale and maturity of investments			31,222,728				63,604,369
Payment for businesses acquired, net of cash acquired			—				(16,824,065	)
Purchase of intangible assets			(918,479	)			(7,344	)
Purchases of property and equipment			(1,738,040	)			(1,139,166	)
Net cash used in investing activities			(5,090,220	)			(2,992,577	)
Cash flows from financing activities:
Decrease in short term debt			(57,175	)			(6,216,965	)
Loans received			—				9,018
Stock options exercised			—				4,502
Issuance of common stock			3				—
Net cash used in financing activities			(57,172	)			(6,203,445	)
Effect of exchange rate changes on cash and cash equivalents			170,150				567,871
Net decrease in cash and cash equivalents			(467,803	)			(1,729,480	)
Cash and cash equivalents, beginning of the period			17,474,112				15,677,407
Cash and cash equivalents, end of the period		$	17,006,309			$	13,947,927

The accompanying notes are an integral part of these condensed consolidated financial statements.

MercadoLibre, Inc.
Condensed Consolidated Statements of Cash Flow
For the three-month periods ended March 31, 2009 and 2008

		Three months ended March 31,
		2009				2008
		(Unaudited)
Supplemental cash flow information:
Cash paid for interest		$	2,041,212			$	922,850
Cash paid for income taxes		$	2,284,364			$	2,647,361
Acquisition of Classified Media Group:
Cash and cash equivalents		$	—			$	554,739
Accounts receivable			—				56,613
Other current assets			—				904,791
Non current assets			—				365,190
Total assets acquired			—				1,881,333
Accounts payable and accrued expenses			—				69,516
Taxes payable			—				459,462
Social security payable			—				243,141
Non current liabilities			—				14,000
Provisions			—				408,336
Total liabilities assumed			—				1,194,455
Net assets acquired			—				686,878
Goodwill			—				13,037,504
Trademarks			—				5,622,188
Deferred Income Tax on Trademarks			—				(1,967,766	)
Total purchase price			—				17,378,804
Cash and cash equivalents acquired			—				(554,739	)
Payment for businesses acquired, net of cash acquired		$	—			$	16,824,065

The accompanying notes are an integral part of these condensed consolidated financial statements.

MercadoLibre, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

1.

Nature of Business

MercadoLibre Inc. (the “Company”) is a marketplace manager. The Company’s mission is to build an online marketplace that enables practically anyone to trade almost anything in Latin America, helping to make inefficient markets more efficient.

The Company operates in several reporting segments. The MercadoLibre marketplace segments include Brazil, Argentina, Mexico, Venezuela and Other countries (Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Panama, Peru and Uruguay). The MercadoPago segment includes our regional payments platform consisting of our MercadoPago business available in Brazil, Argentina, Mexico and Other countries (Chile, Colombia, and Venezuela).

Traditional offline marketplaces can be inefficient because they (i) are fragmented and regional, (ii) offer a limited variety and breadth of goods, (iii) have high transaction costs, and (iv) provide buyers with less information upon which they can make decisions. The Company makes these inefficient marketplaces more efficient because (i) its community of users can easily and inexpensively communicate and complete transactions, (ii) its marketplace includes a very wide variety and selection of goods, and (iii) it brings buyers and sellers together for much lower fees than traditional intermediaries. The Company attracts buyers by offering selection, value, convenience and entertainment, and sellers by offering access to broad markets, efficient marketing and distribution costs, ability to maximize prices and opportunity to increase sales.

The Company pioneered online commerce in the region by developing a Web-based community in which buyers and sellers are brought together to browse, buy and sell items such as computers, electronics, collectibles, automobiles and a host of practical and miscellaneous items. The Company’s trading platform is a fully automated, topically arranged, intuitive, and easy-to-use online service that is available 24 hours-a-day, seven-days-a-week. The Company’s platform supports a fixed price format in which sellers and buyers trade items at a fixed price established by sellers, and an auction format in which sellers list items for sale and buyers bid on items of interest.

Providing more efficient and effective payment methods from buyers to sellers is essential to creating a faster, easier and safer online commerce experience. Traditional payment methods such as bank deposits and cash on delivery present various obstacles to the online commerce experience, including lengthy processing time, inconvenience and high costs. The Company addressed this opportunity through the introduction in 2004 of MercadoPago, an integrated online payments solution. MercadoPago was designed to facilitate transactions on the MercadoLibre Marketplace by providing an escrow mechanism that enables users to securely, easily and promptly send and receive payments online, and has experienced consistent growth since its launch.

In 2004, the Company introduced an online classified advertisements service platform for motor vehicles, vessels and aircrafts. Buyers usually require a physical inspection of these items or specific types of interactions before completing a transaction, and therefore an online classified advertisements service is better suited for purchase and sales of these types of items than the traditional online purchase and sales method. For these items, buyers can search by make, model, year and price, and sellers can list their phone numbers and receive prospective buyers’ e-mail addresses, in order to allow for instant and direct communication between sellers and potential buyers.

In November of 2005, the Company acquired certain operations of DeRemate.com Inc., a regional competing online marketplace, including all of its operations in Brazil, Colombia, Ecuador, Mexico, Peru, Uruguay and Venezuela and the majority of the shares of the capital stock of its subsidiaries (except for its Argentine and Chilean subsidiaries, which were operated under the control of certain previous stockholders of DeRemate), for an aggregate purchase price of $12.1 million, net of cash and cash equivalents acquired.

During 2006, the online classified advertisements service platform was expanded to include real estate. Much in the same way as with motor vehicles, vessels and aircrafts, purchases of real estate, require physical inspection of the property and is therefore a business more suited to a classifieds model. For real estate listings, in addition to posting their contact information, individual owners or real estate agents can also upload pictures and videos of the property for sale and include maps of the property’s location and layout.

During 2006, the Company launched several initiatives to improve its platform and expand its reach. Particularly relevant were the launch of a new platform for eShops, to attract lower rotation items and increase the breadth of products offered, the introduction of user generated information guides for buyers that improve the shopping experience, and the expansion of the online classifieds model by adding a services category. In terms of geographic expansion, the Company launched sites in Costa Rica, the Dominican Republic, and Panama.

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

In August 2007, the Company successfully completed its initial public offering pursuant to which the Company sold 3,000,000 shares of common stock and certain selling shareholders sold 15,488,762 shares of common stock, resulting in net proceeds for the Company of approximately $49,573,239.

During 2007 the Company also launched a new and improved version of its MercadoPago payments platform in Chile and Colombia as well as in Argentina during 2008. The new MercadoPago, in addition to improving the ease of use and efficiency of payments for marketplace purchases, also allows for payments outside of the Company’s marketplaces. Users are able to transfer money to other users with MercadoPago accounts and to incorporate MercadoPago as a means of payments for their websites. In this way MercadoPago 3.0 as it has been called is designed to meet the growing demand for Internet based payments systems in Latin America.

In January 2008, the Company acquired 100% of the issued and outstanding shares of capital stock of Classified Media Group, Inc., or CMG, and its subsidiaries. CMG and its subsidiaries operated an online classified advertisements platform primarily dedicated to the sale of automobiles at www.tucarro.com in Venezuela, Colombia and Puerto Rico and real estate at www.tuinmueble.com in Venezuela, Colombia, Panama, the United States, Costa Rica and the Canary Islands. The Company paid for the shares of CMG and its subsidiaries was $19 million, subject to certain escrows and working capital adjustment clauses.

In September 2008, the Company completed the acquisition of DeRemate.com de Argentina S.A., DeRemate.com Chile S.A., Interactivos y Digitales México S.A. de C.V. and Compañía de Negocios Interactiva de Colombia E.U. for an aggregate purchase price of $ 37.6 million. We also purchased certain URLs, domains, trademarks, databases and intellectual property rights related to those businesses for $ 2.4 million. The total purchase price was subject to certain set off rights and working capital adjustment clauses.

As of March 31, 2009, the Company, through its wholly-owned subsidiaries, operated online commerce platforms directed towards Argentina, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Mexico, Panama, Peru, Uruguay and Venezuela, and online payments solutions directed towards Argentina, Brazil, Mexico, Venezuela, Chile and Colombia. In addition, the Company operates a real estate classified platform that covers some areas of Florida, U.S.A.

2.

Summary of Significant Accounting Policies

Basis of presentation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated. Certain reclassifications have been made to prior year information to conform to current year presentation.

Substantially all revenues and operating costs are generated in the Company’s foreign operations, amounting to approximately 98.7% and 98.8% of the consolidated totals during the three-month periods ended March 31, 2009 and 2008, respectively. Long-lived assets located in the foreign operations totaled $74,256,303 and $75,935,439 as of March 31, 2009 and December 31, 2008, respectively. Cash and cash equivalents as well as short-term investments, totaling $46,360,403 and $49,113,512 at March 31, 2009 and December 31, 2008, respectively, are mainly located in the United States of America.

These unaudited interim financial statements reflect the Company’s consolidated financial position as of March 31, 2009 and December 31, 2008. These statements also show the Company’s consolidated statement of income, its consolidated statement of shareholders’ equity and its consolidated statement of cash flows for the three months ended March 31, 2009 and 2008. These statements include all normal recurring adjustments that management believes are necessary to fairly state the Company’s financial position, operating results and cash flows. Because all of the disclosures required by generally accepted accounting principles in the United States of America for annual consolidated financial statements are not included herein, these interim financial statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, 2008, contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 27, 2009. The condensed consolidated statements of income, shareholders’ equity and cash flows for the periods presented are not necessarily indicative of results expected for any future period.

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

Foreign Currency Translation

All of the Company’s foreign operations have determined the local currency to be their functional currency. Accordingly, these foreign subsidiaries translate assets and liabilities from their local currencies to U.S. dollars using year end exchange rates while income and expense accounts are translated at the average rates in effect during the year. The resulting translation adjustment is recorded as part of other comprehensive income (loss), a component of shareholders’ equity. Gains and losses resulting from transactions denominated in non-functional currencies are recognized in earnings. Net foreign currency transaction losses are included in the consolidated statements of income under the caption “Foreign currency gain / (loss)”.

The Venezuelan subsidiaries maintained a foreign currency denominated asset in the form of US dollar denominated cash and cash equivalents. In accordance with the Company’s stated accounting policy, this investment should first be re-measured into its functional currency “Bolivares Fuertes”. Upon re-measurement into its functional currency, the investment will then be translated into the reporting currency of the Company (US Dollar). In accordance with paragraph 27a of FAS 52 “Foreign Currency Translation”, these assets were re-measured at the March 31, 2009 parallel exchange rate of 6.25 “Bolivares Fuertes” per US dollar (at December 31, 2008 was 5.4 “Bolivares Fuertes” per US dollar). Further, in accordance with paragraph 27b of FAS 52, the Venezuelan subsidiaries assets, liabilities, income and expense accounts were translated at the rate applicable for dividend remittances, which at March 31, 2009 and December 31, 2008 was the official rate of 2.15 “Bolivares Fuertes” per US dollar. According to the International Practices Task Force Joint Meeting with SEC Staff of June 2, 2008, the existence of a parallel market does not constitute unusual circumstances potentially justifying the use of an exchange rate other than the official rate for purposes of foreign currency translation. Accordingly, the foreign currency effect on assets is included in “Other non-current assets” in the consolidated balance sheet, and is the result of applying the Company’s accounting policy for the related asset.

Taxes on revenues

The Company’s subsidiaries in Brazil, Argentina, Venezuela and Colombia are subject to certain taxes on revenues which are classified as cost of revenues. Taxes on revenues totaled $1,727,401 and $1,692,328 for the three-month periods ended March 31, 2009 and 2008, respectively.

Income and Asset Taxes

The Company is subject to an enacted Mexican business flat tax called “Impuesto Empresarial a Tasa Unica” (“IETU”). The Company pays the higher of IETU or income tax. Although the Company’s Mexican subsidiary has net operating loss carryforward (NOL’s), it has to pay IETU and once NOL’s are consumed, the Company expects it will only accrue and pay income tax. The effect of IETU has been included in the income / asset tax expense line for the three-month period ended March 31, 2009 and 2008.

As from fiscal year 2008, the Company’s Argentine subsidiary is a beneficiary of a software development law. Part of the benefits obtained from being a beneficiary of the aforementioned law is a relief of 60% of total income tax determined in each year, for 10 years.

Use of estimates

The preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used for, but not limited to accounting for allowance for doubtful accounts, depreciation, amortization, impairment and useful lives of long-lived assets, compensation cost related to cash and share-based compensation and restricted shares, recognition of current and deferred income taxes and contingencies. Actual results could differ from those estimates.

Fair Value Measurements

Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards (“FAS”) No. 157, “Fair Value Measurements” (“FAS 157”). In February 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) No. FAS 157-2, “Effective Date of FASB Statement No. 157,” which provided a one year deferral of the effective date of FAS 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Therefore, the Company has adopted the provisions of FAS 157 with respect to its financial assets and liabilities as from January 1, 2008. The adoption of FAS 157 did not have a material impact on the consolidated results of operations or financial condition. See note 6 for further details.

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

Recent Accounting Pronouncements

1. The hierarchy of generally accepted accounting principles

In May 2008, FAS No. 162 “The hierarchy of generally accepted accounting principles” was issued by the FASB. FAS No. 162, which became effective on November 13, 2008, identifies the sources of accounting principles and the framework for selecting the principles used in preparing the financial statements of nongovernmental entities that are presented in conformity with U.S. GAAP. On March 27, 2009, the FASB issued an Exposure Draft, The Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162, with a comment period ending May 8, 2009. After completion of the comment period, the Board will consider comment letters received and begin re-deliberations. The Codification is set to officially launch on July 1, 2009. Once the Codification is approved, all of its content will carry the same level of authority, effectively superseding FAS N0. 162. After that date, only one level of authoritative GAAP will exist. All other literature will be considered non-authoritative. The Codification does not change US GAAP; instead, it introduces a new structure-one that is organized in an easily accessible, user-friendly online research system.

2. Disclosures about Fair Value of Financial Instruments

In April, 2009 the FASB issued FASB Staff Position No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments”. This FASB Staff Position (FSP) amends FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments”, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. This FSP shall be effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company is evaluation the impact that this FSP will have on the condensed consolidated financial statements.

3.

Net income per share

Basic earnings per share for the Company’s common stock is computed by dividing net income for the period by the weighted average number of common shares outstanding during the period.

The Company’s restricted shares granted to its outside directors are participating securities. Accordingly, net income available to common stockholders for the three-month period ended March 31, 2009, was allocated between unvested restricted shares and common stock under the “two class method” for purposes of computing basic and diluted earnings per share.

Diluted earnings per share for the Company’s common stock assume the exercise of outstanding stock options and vesting restricted shares, additional shares and shares granted under the 2008 Long Term Retention Plan under the Company’s stock based employee compensation plans.

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

The following table shows how net income available to common shareholders is allocated using the two-class method, for the three-month periods ended March 31, 2009 and 2008:

		Three months ended March 31,
		2009								2008
		Basic				Diluted				Basic				Diluted
Net income		$	5,391,176			$	5,391,176			$	2,067,677			$	2,067,677
Net income available to common shareholders attributable to unvested restricted shares		$	165			$	165			$	—			$	—
Net income available to common shareholders attributable to common stock		$	5,391,011			$	5,391,011			$	2,067,677			$	2,067,677

Net income per share of common stock is as follows for the three-month periods ended March 31, 2009 and 2008:

		Three months ended March 31,
		2009								2008
		Basic				Diluted				Basic				Diluted
Net income available to common shareholders per common share		$	0.12			$	0.12			$	0.05			$	0.05
Numerator:
Net income available to common shareholders		$	5,391,011			$	5,391,011			$	2,067,677			$	2,067,677
Denominator:
Weighted average of common stock outstanding for Basic earnings per share			44,069,134				44,069,134				44,227,460				44,227,460
Adjustment for stock options			—				49,568				—				139,691
Adjustment for restricted shares			—				—				—				860
Adjustment for Additional Shares			—				12,164				—				—
Adjusted weighted average of common stock outstanding for Diluted earnings per share			44,069,134				44,130,866				44,227,460				44,368,011

The calculation of diluted net income per share excludes all anti-dilutive shares. For the three-month periods ended March 31, 2009 and 2008, the numbers of anti-dilutive shares are as follows:

		Three months ended March 31,
		2009				2008
Anti-dilutive shares
Restricted shares			—				7,882
2008 Shares granted under LTRP			18,690				—
			18,690				7,882

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

4.

Business Combinations, Goodwill and Intangible Assets

Business Combinations

a) Classified Media Group, Inc.

On January 22, 2008, the Company completed the acquisition of 100% of the issued and outstanding shares of capital stock of CMG Classified Media Group, Inc. (“CMG”) and its subsidiaries from 2050 Capital Group Inc., a Panama corporation, Abax Group Inc., a Panama corporation, Gabinete De Diseño Industrial Inc., a Panama corporation, Stamford One Group Ltd., a British Virgin Islands limited company, EO Financial Group Inc., a Panama corporation, Meck Investments Ltd., a British Virgin Islands limited company, CG Interventures Inc., a Panama corporation, and other individuals (the “Sellers”). CMG and its subsidiaries operate an online classified advertisements platform primarily dedicated to the sale of automobiles (at www.tucarro.com) in Colombia, Venezuela and Puerto Rico and real estate (at www.tuinmueble.com) in Venezuela, Colombia, Panama, the United States, Costa Rica and the Canary Islands. This acquisition allows the Company to expand its operations mainly in Venezuela and Colombia, solidify its market leadership position in those countries and continue growing of online classified advertisements platform in the locations were the acquired company operates.

On the acquisition date, the Company paid in cash for CMG $19,000,000.

The purchase price for the shares of CMG and its subsidiaries was $17,024,380, subject to an escrow to cover unexpected liabilities and working capital adjustments. In addition, acquisition costs amounting to $ 204,424 which were considered in the purchase price allocation as part of the aggregate purchase price. On May 7, 2008, the Company paid $150,000 related to certain working capital adjustments. On the Closing Date, an aggregate of $1,975,620, was placed into an escrow account for a period of twelve (12) months after the Closing Date, in order to secure the obligations of the former CMG shareholders that remained as managers, pursuant to each of their respective employment agreements.

Under EITF 95-8 “Accounting for Contingent Consideration Paid to the Shareholders of an Acquired Enterprise in a Purchase Business Combination” the Company has recognized this contingent consideration paid to the former shareholders, as compensation for services. On May 12, 2008, the Company and these former shareholders agreed to an early release of the $1,975,620 escrow on or before June 30, 2008, in exchange for a discount to the Company.

On June 27, 2008, the Company released to the former CMG shareholders $1,919,870 in full satisfaction of the management escrow after deducting the aforementioned discount.

As of March 31, 2008, the accrued compensation expenses related to escrow release were included in “Compensation costs related to acquisitions” within operating expenses, for a total amount of $373,473. Therefore the unaccrued portion of the amount held in escrow, minus the discount, which equals $1,546,397 was fully expensed in the second quarter of 2008.

The following table summarizes the allocation of the cash paid in the acquisition:

Purchase Price		$	17,024,380
Post-closing working capital adjustments			150,000
Direct cost of the business combination			204,424
Total aggregate purchase price		$	17,378,804
Compensation Cost			1,919,870
Total Cash paid		$	19,298,674

As from the acquisition date in January 2008, the acquired company results of operations have been included in the Company’s income statement.

The following table summarizes an allocation of the purchase price for the companies acquired in the transaction (in thousands):

				Post				Net Tangible				Identifiable				Deferred								Aggregate
				Acquisition				Assets /				Intangible				Tax								Purchase
Company Name		Country		Ownership				(Liabilities)				Assets				Liabilities				Goodwill				Price
CMG Classified Media Group Inc.		Panama			100	%		$	846.3			$	—			$	—			$	—			$	846.3
Venecapital Group Inc.		Panama			100	%			(26.8	)			—				—				—				(26.8	)
Grupo Veneclasificados C.A.		Venezuela			100	%			(125.4	)			4,934.2				(1,727.0	)			11,442.0				14,523.8
Clasificados Internacionales S.A.		Panama			100	%			(44.8	)			—				—				—				(44.8	)
ColClasificados S.A.		Colombia			100	%			36.4				688.0				(240.8	)			1,595.5				2,079.1
Clasificados Florida LLC		USA			100	%			1.2				—				—				—				1.2
Total								$	686.9			$	5,622.2			$	(1,967.8	)		$	13,037.5			$	17,378.8

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

Tangible net assets were valued at their respective carrying amounts adjusted to US GAAP since the management of the Company believes that these amounts approximated their current fair values at the acquisition date. The valuation of identifiable intangible assets acquired reflects management’s estimates based on, among other factors, use of established valuation methods. Such assets consist of trademarks and trade names for a total amount of $5,622,188.

Management of the Company estimates that trademarks have an indefinite lifetime. For that reason, these intangible assets are not amortized but they are subject to an annual impairment test.

The goodwill of $13,037,504 is not expected to be deductible for tax purposes.

b) DeRemate Operations

On September 5, 2008, the Company completed, through one of its subsidiaries, Hammer.com, LLC, the acquisition of all of the issued and outstanding shares of capital stock of DeRemate.com de Argentina S.A., a company organized under the laws of Argentina (“DR Argentina”), DeRemate.com Chile S.A., a company organized under the laws of Chile (“DR Chile”), Interactivos y Digitales México S.A. de C.V., a company organized under the laws of Mexico (“ID Mexico”) and Compañía de Negocios Interactiva de Colombia E.U., a company organized under the laws of Colombia (“CNI Colombia” and together with DR Argentina, DR Chile, and ID Mexico, the “Acquired Entities”). Also, on September 5, 2008, the Company entered into an asset purchase agreement to acquire certain URLs, domain names, trademarks, databases and intellectual property rights that are used or useful in connection with the online platforms of the Acquired Entities. The Acquired Entities operate online trading platforms in Argentina (www.deremate.com.ar), Chile (www.deremate.cl), Mexico (www.dereto.com.mx) and Colombia (www.dereto.com.co).

The aggregate purchase price paid by the Company to the Sellers for the shares of capital stock of the Acquired Entities and the related assets was $40,000,000. The Company paid the Sellers $22,000,000 in cash. In addition, on September 5, 2008, the Company issued to the Sellers ten (10) unsecured promissory notes having an aggregate principal amount of $18,000,000, $8,000,000 of which are subject to set-off rights in favor of the Company for working capital adjustments and liabilities relating to the assumption of certain contracts by the Company, $4,000,000 of which are subject to set-off rights in favor of the Company for indemnification obligations of the Sellers and the remaining $6,000,000 are not subject to set-off rights. Each of the promissory notes have a one-year term, bear interest at 3.17875% plus 1.5% for the first four months, 2.0% for the second four months and 2.5% for the third four months and can be prepaid by the Company without penalty. Pursuant to the terms of each promissory note, until the principal amount plus interest is repaid, the Company may not incur indebtedness in excess of $55,000,000 in the aggregate.

On February 12, 2009 we agreed to modify the maturity conditions of the promissory note as follows: (i) 3,000,000 on June 5, 2009 (ii) 9,000,000 on September 5, 2009 (iii) 3,000,000 on December 5, 2009 and (iv) 3,000,000 on March 5, 2010. The promissory notes bear interest at 3.17875% plus 1.5% for the first four months, 2.0% for the second four months and 2.5% for the remaining period up to its maturity. In addition, on that date we finished the purchase price allocation period and the Company agreed with the Sellers a working capital adjustment for $480,912 to be paid by the Sellers to the Company.

The Sellers and certain of their affiliates have also agreed to enter into certain non-compete agreements with the Company for 5 years.

The Company’s statement of income includes the results of operations of the acquired companies from September 1, 2008.

The following table summarizes the allocation of the cash paid and debt assumed in the acquisition:

Cash paid		$	22,000,000
Seller financing			18,000,000
Working Capital adjustment			(480,912	)
Direct cost of the business combination			494,301
Total aggregate purchase price		$	40,013,389

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

The following table summarizes the purchase price allocation of the Acquired Entities in the transaction (in thousands):

				Post				Net Tangible				Identifiable				Deferred								Aggregate
				Acquisition				Assets /				Intangible				Tax								Purchase
Company Name		Country		Ownership				(Liabilities)				Assets				Liabilities				Goodwill				Price
DeRemate.com de Argentina S.A.		Argentina			100	%		$	2,555.2			$	1,444.1			$	(505.4	)		$	30,658.9			$	34,152.8
DeRemate.com Chile S.A.		Chile			100	%			(1,978.9	)			302.2				(105.8	)			6,659.4			$	4,876.9
Compañía de Negocios Interactiva de Colombia E.U.		Colombia			100	%			(753.4	)			25.6				(9.0	)			1,417.2			$	680.4
Interactivos y Digitales México S.A. de C.V.		Mexico			100	%			(580.7	)			29.2				(10.2	)			864.9			$	303.2
Total								$	(757.8	)		$	1,801.1			$	(630.4	)		$	39,600.5			$	40,013.3

Assets acquired and liabilities assumed were valued at their respective carrying amounts adjusted to U.S. GAAP because management of the Company believes that these amounts approximated their current fair values at the acquisition date. The valuation of identifiable intangible assets acquired reflects management’s estimates based on, among other factors, use of established valuation methods. Such assets consist of customer lists and non-compete agreements for a total amount of $1,801,084. Intangible assets associated with customer list and non-compete agreements are amortized over a five year period.

The company recognized a significant amount of goodwill because the acquisition is expected to significantly expand the company’s business in Chile while strengthening the company’s leadership position in Argentina. Management expects significant synergies between both businesses to be realized, mainly through improving the monetization of DeRemate’s gross merchandise volume and by generating efficiencies in operations and technology. As a result, a significant portion of the consideration was based on the expected financial performance and the synergies of DeRemate business acquired and not the asset value on the books of DeRemate at the time of acquisition.

Goodwill of $39,600,532 is not expected to be deductible for tax purposes.

The results of operations for periods prior to the acquisition for each acquisition, both individually and in the aggregate, were not material to the consolidated statements of operations of the Company and, accordingly, pro forma results of operations have not been presented.

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

The following table summarizes the net tangible assets acquired in the abovementioned business combinations:

		CMG				DeRemate				Total
Cash and cash equivalents		$	554,739				136,893				691,632
Funds receivable from customers			—				117,473				117,473
Accounts receivable			56,613				6,512,485				6,569,098
Tax Credits			—				604,419				604,419
Other current assets			904,791				14,065				918,856
Non current assets			365,190				139,737				504,927
Total assets acquired		$	1,881,333				7,525,072				9,406,405
Accounts payable and accrued expenses			69,516				4,509,314				4,578,830
Funds payable to customers			—				146,191				146,191
Taxes payable			459,462				745,017				1,204,479
Social security payable			243,141				151,971				395,112
Other liabilities			—				1,590,371				1,590,371
Non current liabilities			14,000				—				14,000
Provisions			408,336				1,140,055				1,548,391
Total liabilities assumed		$	1,194,455				8,282,919				9,477,374
Net tangible assets (liabilities)		$	686,878				(757,847	)			(70,969	)

Goodwill and Intangible Assets

The composition of goodwill and intangible assets is as follows:

		March 31,				December 31,
		2009				2008
Indefinite lived assets
- Goodwill		$	63,527,140			$	65,652,774
- Trademarks		$	5,462,868				5,537,715
Amortizable intangible assets
- Licenses and others		$	2,159,731				1,313,901
- Non-compete agreement		$	1,031,714				1,051,531
- Customer list		$	1,482,092				1,534,969
Total intangible assets		$	73,663,545			$	75,090,890
Accumulated amortization			(2,232,542	)			(2,179,344	)
		$	71,431,003			$	72,911,546

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

Goodwill

The changes in the carrying amount of goodwill for the three-month period ended March 31, 2009 and the year ended December 31, 2008, are as follows:

		Three months ended March 31, 2009
		Marketplaces
		Brazil				Argentina				Chile				Mexico				Venezuela				Colombia				Other Countries				Total
Balance, beginning of year		$	9,361,697			$	26,903,145			$	5,365,727			$	4,517,690			$	13,636,502			$	4,647,681			$	1,220,332			$	65,652,774
- Effect of exchange rates changes			88,150				(1,930,953	)			489,322				(192,101	)			—				(576,367	)			(3,685	)			(2,125,634	)
Balance, end of the period		$	9,449,847			$	24,972,192			$	5,855,049			$	4,325,589			$	13,636,502			$	4,071,314			$	1,216,647			$	63,527,140

		Year ended December 31, 2008
		Marketplaces
		Brazil				Argentina				Chile				Mexico				Venezuela				Colombia				Other Countries				Total
Balance, beginning of year		$	12,351,542			$	—			$	—			$	4,898,867			$	2,194,480			$	2,257,830			$	1,297,748			$	23,000,467
- Purchase of CMG			—				—				—				—				11,442,022				1,595,482				—				13,037,504
- Purchase of DR Operations			—				30,658,930				6,659,419				864,945				—				1,417,239				—				39,600,533
- Effect of exchange rates changes			(2,989,845	)			(3,755,785	)			(1,293,692	)			(1,246,122	)			—				(622,870	)			(77,416	)			(9,985,730	)
Balance, end of the period		$	9,361,697			$	26,903,145			$	5,365,727			$	4,517,690			$	13,636,502			$	4,647,681			$	1,220,332			$	65,652,774

Amortizable intangible assets

Amortizable intangible assets are comprised of customer lists and user base, trademarks and trade names, non-compete agreements, acquired software licenses and other acquired intangible assets including developed technologies. Aggregate amortization expense for intangible assets totaled $139,401 and $79,986 for the three-month periods ended March 31, 2009 and 2008, respectively.

Expected future intangible asset amortization from acquisitions completed as of March 31, 2009 is as follows:

For year ended 12/31/2009 (remaining nine months)		$	544,790
For year ended 12/31/2010		$	700,895
For year ended 12/31/2011		$	624,250
For year ended 12/31/2012		$	372,999
For year ended 12/31/2013		$	197,588
Thereafter		$	473
			2,440,995

5.

Segments

Reporting segments are based upon the Company’s internal organizational structure, the manner in which the Company’s operations are managed, the criteria used by management to evaluate the Company’s performance, the availability of separate financial information, and overall materiality considerations.

The Marketplace segments include Brazil, Argentina, Venezuela, Mexico and Other countries (Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Panama, Peru and Uruguay) on line market places commerce platforms. The Payments segment is the Company’s regional payments platform consisting of its MercadoPago business in Brazil, Argentina, Mexico, Chile, Colombia, and Venezuela.

Direct contribution consists of revenues less direct costs. Direct costs include specific costs of net revenues, sales and marketing expenses, and general and administrative expenses over which segment managers have direct discretionary control, such as advertising and marketing programs, customer support expenses, allowances for doubtful accounts, headcount compensation, third party fees.

MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

Expenses over which segment managers do not currently have discretionary control, such as certain technology and general and administrative costs, are monitored by management through shared cost centers and are not evaluated in the measurement of segment performance.

The following tables summarize the financial performance of the Company’s reporting segments:

		Three months ended March 31, 2009
		Marketplaces
		Brazil				Argentina				Mexico				Venezuela				Other Countries				Total				Payments				Consolidated
Net revenues		$	9,878,197			$	4,965,877			$	2,868,922			$	6,365,820			$	1,875,105			$	25,953,921			$	6,368,580			$	32,322,501
Direct costs			(6,605,658	)			(2,176,755	)			(1,795,937	)			(4,051,050	)			(999,405	)			(15,628,805	)			(4,081,206	)			(19,710,011	)
Direct contribution			3,272,539				2,789,122				1,072,985				2,314,770				875,700				10,325,116				2,287,374				12,612,490
Operating expenses and indirect costs of net revenues																															(5,844,946	)
Income from operations																															6,767,544
Other income (expenses):
Interest income and other financial gains																															929,663
Interest expense and other financial results																															(2,510,184	)
Foreign currency gain																															1,875,486
Net income before income / asset tax expense																														$	7,062,509