MERCADOLIBRE INC - Quarter Report: 2011 June (Form 10-Q)

Form 10-Q

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 June 30, 2011

-OR-


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

For the transition period from to

Commission file number 001-33647

MercadoLibre, Inc.

(Exact name of Registrant as specified in its Charter)


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

Arias 3751, 7th Floor
Buenos Aires, C1430CRG, Argentina
(Address of registrant’s principal executive offices)

011-54-11-4640-8000
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 þ 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 smaller 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.

44,142,020 shares of the issuer’s common stock, $0.001 par value, outstanding as of August 3, 2011.

MERCADOLIBRE, INC.
INDEX TO FORM 10-Q



PART I. FINANCIAL INFORMATION

Item 1 — Unaudited Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010			2

Condensed Consolidated Statements of Income for the three- and six-month periods ended June 30, 2011 and 2010			3

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the six-month periods ended June 30, 2011 and 2010			4

Condensed Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2011 and 2010			6

Notes to Condensed Consolidated Financial Statements			7

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations			31

Item 3 — Qualitative and Quantitative Disclosures About Market Risk			48

Item 4 — Controls and Procedures			51

PART II. OTHER INFORMATION

Item 1 — Legal Proceedings			51

Item 1A — Risk Factors			53

Item 6 — Exhibits			54

INDEX TO EXHIBITS

Exhibit 10.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION


Item 1.		Unaudited Condensed Consolidated Financial Statements

MercadoLibre, Inc.

Condensed Consolidated Balance Sheets

As of June 30, 2011 and December 31, 2010

MercadoLibre, Inc.
Condensed Consolidated Financial Statements
as of June 30, 2011 and December 31, 2010
and for the three- and six-month periods
ended June 30, 2011 and 2010

MercadoLibre, Inc.

Condensed Consolidated Balance Sheets
As of June 30, 2011 and December 31, 2010


	June 30,			December 31,
	2011			2010
	(Unaudited)			(Audited)
Assets
Current assets:
Cash and cash equivalents	$	44,250,132		$	56,830,466
Short-term investments		72,384,019			5,342,766
Accounts receivable, net		14,984,136			12,618,173
Funds receivable from customers		7,910,434			6,151,518
Prepaid expenses		1,331,890			913,262
Deferred tax assets		12,396,948			12,911,256
Other assets		5,964,157			6,867,767

Total current assets		159,221,716			101,635,208
Non-current assets:
Long-term investments		50,201,025			78,846,281
Property and equipment, net		31,316,388			20,817,712
Goodwill, net		61,356,716			60,496,314
Intangible assets, net		3,819,064			4,141,167
Deferred tax assets		1,939,191			2,975,118
Other assets		671,876			771,223

Total non-current assets		149,304,260			168,047,815


Total assets	$	308,525,976		$	269,683,023


Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	20,333,485		$	17,232,103
Funds payable to customers		58,176,211			48,788,225
Payroll and social security payable		10,545,802			10,786,534
Taxes payable		8,061,079			11,487,574
Loans payable and other financial liabilities		105,498			100,031
Dividends payable		3,531,337			—

Total current liabilities		100,753,412			88,394,467
Non-current liabilities:
Payroll and social security payable		3,106,880			2,562,343
Loans payable and other financial liabilities		125,721			188,846
Deferred tax liabilities		4,726,032			5,167,699
Other liabilities		2,184,761			1,651,398

Total non-current liabilities		10,143,394			9,570,286
Total liabilities	$	110,896,806		$	97,964,753


Commitments and contingencies (Note 8)

Shareholders’ equity:

Common stock, $0.001 par value, 110,000,000 shares authorized, 44,141,707 and 44,131,376 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively	$	44,142		$	44,131
Additional paid-in capital		120,429,310			120,391,622
Retained earnings		95,498,168			73,681,556
Accumulated other comprehensive loss		(18,342,450	)		(22,399,039	)

Total shareholders’ equity		197,629,170			171,718,270


Total liabilities and shareholders’ equity	$	308,525,976		$	269,683,023

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

MercadoLibre, Inc.

Condensed Consolidated Statements of Income
For the three- and six-month periods ended June 30, 2011 and 2010


	Six Months Ended June 30,						Three Months Ended June 30,
	2011			2010			2011			2010
	(Unaudited)						(Unaudited)

Net revenues	$	130,837,828		$	98,448,105		$	69,378,160		$	52,510,331
Cost of net revenues		(31,270,822	)		(21,304,611	)		(16,939,118	)		(11,411,561	)

Gross profit		99,567,006			77,143,494			52,439,042			41,098,770

Operating expenses:
Product and technology development		(10,675,783	)		(7,201,240	)		(5,518,892	)		(3,976,466	)
Sales and marketing		(28,865,357	)		(22,581,944	)		(15,636,413	)		(11,473,145	)
General and administrative		(19,183,316	)		(13,041,477	)		(9,732,340	)		(6,834,592	)

Total operating expenses		(58,724,456	)		(42,824,661	)		(30,887,645	)		(22,284,203	)

Income from operations		40,842,550			34,318,833			21,551,397			18,814,567


Other income (expenses):
Interest income and other financial gains		4,123,668			1,711,529			2,249,898			917,388
Interest expense and other financial charges		(1,509,769	)		(6,351,339	)		(880,819	)		(3,355,921	)
Foreign currency (loss) / gain		(1,203,369	)		361,494			(702,714	)		(35,478	)
Other income, net		260,441			—			240,097			—


Net income before income / asset tax expense		42,513,521			30,040,517			22,457,859			16,340,556


Income / asset tax expense		(13,635,062	)		(8,745,954	)		(7,637,033	)		(4,666,593	)


Net income	$	28,878,459		$	21,294,563		$	14,820,826		$	11,673,963


	Six Months Ended June 30,				Three Months Ended June 30,
	2011		2010		2011		2010
	(Unaudited)				(Unaudited)

Basic EPS
Basic net income per common share	$	0.65	$	0.48	$	0.34	$	0.26


Weighted average shares		44,134,763		44,117,364		44,138,105		44,121,087


Diluted EPS
Diluted net income per common share	$	0.65	$	0.48	$	0.34	$	0.26

Weighted average shares		44,149,911		44,142,829		44,152,296		44,145,255

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 six-month periods ended June 30, 2011 and 2010 (unaudited)


													Accumulated
								Additional					other
	Comprehensive			Common stock				paid-in			Retained		comprehensive
	income			Shares		Amount		capital			Earnings		income / (loss)			Total
Balance as of December 31, 2009					44,120,269	$	44,120	$	120,257,998		$	17,656,537	$	(23,765,418	)	$	114,193,237


Stock options exercised					4,626		5		5,444			—		—			5,449
Stock-based compensation — stock options					—		—		121			—		—			121
Stock-based compensation — restricted shares					—		—		37,696			—		—			37,696
Stock-based compensation LTRP					—		—		73,923			—		—			73,923
LTRP shares issued					3,981		4		(4	)		—		—			—
Net income	$	21,294,563			—		—		—			21,294,563		—			21,294,563
Currency translation adjustment		(1,468,912	)		—		—		—			—		(1,468,912	)		(1,468,912	)
Unrealized net loss on investments		(386,935	)		—		—		—			—		(386,935	)		(386,935	)
Realized net gain on investments		(27,630	)		—		—		—			—		(27,630	)		(27,630	)

Comprehensive income	$	19,411,086

Balance as of June 30, 2010					44,128,876	$	44,129	$	120,375,178		$	38,951,100	$	(25,648,895	)	$	133,721,512


Stock options exercised					2,500		2		12,748			—		—			12,750
Stock-based compensation — stock options					—		—		123			—		—			123
Stock-based compensation — restricted shares					—		—		—			—		—			—
Stock-based compensation LTRP					—		—		3,573			—		—			3,573
Net income	$	34,730,456			—		—		—			34,730,456		—			34,730,456
Currency translation adjustment		2,817,394			—		—		—			—		2,817,394			2,817,394
Unrealized net gains on investments		432,462			—		—		—			—		432,462			432,462
Realized net gains on investments		—			—		—		—			—		—			—

Comprehensive income	$	37,980,312

Balance as of December 31, 2010					44,131,376	$	44,131	$	120,391,622		$	73,681,556	$	(22,399,039	)	$	171,718,270

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 six-month periods ended June 30, 2011 and 2010 (unaudited)


														Accumulated
								Additional						other
	Comprehensive			Common stock				paid-in			Retained			comprehensive
	income			Shares		Amount		capital			Earnings			income / (loss)			Total
Balance as of December 31, 2010					44,131,376	$	44,131	$	120,391,622		$	73,681,556		$	(22,399,039	)	$	171,718,270


Stock options exercised					5,637		6		10,700			—			—			10,706
Stock-based compensation LTRP					—		—		26,993			—			—			26,993
Dividend Distribution					—		—		—			(7,061,847	)		—			(7,061,847	)
LTRP shares issued					4,694		5		(5	)		—			—			—
Net income	$	28,878,459			—		—		—			28,878,459			—			28,878,459
Currency translation adjustment		3,720,681			—		—		—			—			3,720,681			3,720,681
Unrealized net gains on investments		381,435			—		—		—			—			381,435			381,435
Realized net gain on investments		(45,527	)		—		—		—			—			(45,527	)		(45,527	)

Comprehensive income	$	32,935,048

Balance as of June 30, 2011					44,141,707	$	44,142	$	120,429,310		$	95,498,168		$	(18,342,450	)	$	197,629,170

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

MercadoLibre, Inc.

Condensed Consolidated Statements of Cash Flows
For the six-month periods ended June 30, 2011 and 2010 (unaudited)


	Six Months Ended June 30,
	2011			2010
	(Unaudited)
Cash flows from operations:
Net income	$	28,878,459		$	21,294,563
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,305,795			2,187,353
Accrued interest		(2,353,234	)		(37,763	)
Stock-based compensation expense — stock options		—			121
Stock-based compensation expense — restricted shares		—			37,696
LTRP accrued compensation		2,303,542			1,515,662
Deferred income taxes		1,484,213			(1,099,249	)
Changes in assets and liabilities:
Accounts receivable		(164,556	)		(4,578,556	)
Funds receivable from customers		(1,779,329	)		247,441
Prepaid expenses		(393,477	)		51,734
Other assets		1,067,637			(1,735,721	)
Accounts payable and accrued expenses		(5,766,185	)		5,249,442
Funds payable to customers		6,718,843			4,738,946
Other liabilities		430,606			(1,779,899	)

Net cash provided by operating activities		33,732,314			26,091,770

Cash flows from investing activities:
Purchase of investments		(200,995,988	)		(64,252,379	)
Proceeds from sale and maturity of investments		171,094,260			26,860,341
Purchases of intangible assets		(108,823	)		(12,733	)
Purchases of property and equipment		(13,247,416	)		(3,906,287	)

Net cash used in investing activities		(43,257,967	)		(41,311,058	)

Cash flows from financing activities:
Decrease in loans payable		—			(2,993,985	)
Dividends distribution		(3,530,510	)		—
Stock options exercised		10,706			5,449

Net cash used in financing activities		(3,519,804	)		(2,988,536	)

Effect of exchange rate changes on cash and cash equivalents		465,123			(26,858	)

Net decrease in cash and cash equivalents		(12,580,334	)		(18,234,682	)
Cash and cash equivalents, beginning of the period		56,830,466			49,803,402

Cash and cash equivalents, end of the period	$	44,250,132		$	31,568,720


Supplemental cash flow information:
Cash paid for interest	$	26,426		$	5,753,706
Cash paid for income and asset taxes	$	14,806,871		$	10,377,362

MercadoLibre, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Nature of Business

MercadoLibre Inc. (the “Company”) is an e-commerce enabler whose mission is to build the necessary online and technology tools to allow practically anyone to trade almost anything, helping to make inefficient markets more efficient in Latin America.

The Company developed a web-based marketplace in which buyers and sellers are brought together to browse, buy and sell items such as computers, electronics, collectibles, automobiles, clothing and a host of practical and miscellaneous items. Additionally, the Company introduced MercadoPago in 2004, an integrated online payments solution. MercadoPago was designed to facilitate transactions on the MercadoLibre Marketplace by providing an escrow mechanism that enables users to send and receive payments online.

Since 2004, the Company introduced an online classifieds platform for motor vehicles, vessels and aircrafts and since 2006 the real state online classifieds platform. In 2006, the Company launched eShops, a new platform tailored 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 the services category.

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 in their independent commerce 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. On March 30, 2010, the Company started processing off-MercadoLibre transactions through its new direct payments product to any site in Brazil which elects to adopt it. On July 16, 2010, the Company launched MercadoPago 3.0 in Brazil for all of its marketplace transactions. In February 2011, the Company started processing off-platform transactions in Mexico using its new direct payments product, MercadoPago 3.0, for any site in Mexico that elects to adopt it, while maintaining the escrow product for on-platform transactions. On April 15, 2011, the Company launched a new and improved version of its MercadoPago payments platform for all its marketplace transactions in Mexico.

As of June 30, 2011, 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, Portugal, 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.

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

Summary of Significant Accounting Policies

Basis of presentation

The accompanying unaudited interim condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) and include the accounts of the Company and its wholly-owned subsidiaries. These financial statements are stated in US dollars. All intercompany transactions and balances have been eliminated.

Substantially all revenues and operating costs are generated in the Company’s foreign operations, amounting to approximately 99.6% and 99.4% of the consolidated totals during the six-month periods ended June 30, 2011 and 2010, respectively. Long-lived assets located in the foreign operations totaled $90,339,470 and $81,834,265 as of June 30, 2011 and December 31, 2010, respectively. Cash and cash equivalents as well as short and long-term investments, totaling $166,835,176 and $141,019,513 at June 30, 2011 and December 31, 2010, respectively, are mainly located in the United States of America and Brazil.

These unaudited interim condensed financial statements reflect the Company’s consolidated financial position as of June 30, 2011 and December 31, 2010. These statements also show the Company’s consolidated statement of income for the three- and six-month periods ended June 30, 2011 and 2010, its consolidated statement of shareholders’ equity and its consolidated statement of cash flows for the six-month periods ended June 30, 2011 and 2010. 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, 2010, contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 25, 2011. 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.

Revenue Recognition

The Company generates revenues for different services provided. When more than one service is included in one single arrangement with the customer, the Company recognizes revenue according to multiple element arrangements accounting, distinguishing between each of the services provided and allocating revenues based on their respective selling prices.

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

Summary of Significant Accounting Policies (Continued)

Revenue Recognition (Continued)

Revenues are recognized when evidence of an arrangement exists, the fee is fixed or determinable, no significant obligation remains and collection of the receivable is reasonably assured.

Services are separately recognized as revenue according to the following criteria described for each type of services:

•

Services for intermediation between on-line buyers and sellers, for which the company charges a percentage on the transaction value (“final value fees”), are recognized as revenue once the sale transaction between the buyer and seller is successfully completed (which occurs upon confirmation of the sale by the seller).

•

Services for the use of the Company’s on-line payments solution, for transactions off-platform ordered by MercadoPago customers. The Company does not charge a separate fee for on-platform transactions in certain countries. The fee that we charge for all off-marketplace platform transactions is recorded as revenue once the transaction is completed, at the time when the payment is processed by the Company. For on-marketplace platform transactions, we generate revenue in the countries where we offer the service in a way that implies that the customer has to pay an additional fee for the right to use the payments solution.

•

Listing and optional feature services, which fees relate to the right of a seller to have the item offered listed in a preferential way, as well as classified advertising services, are recorded as revenue ratably during the listing period. Those fees are charged at the time the listing is uploaded onto the Company’s platform and is not subject to successful sale of the items listed.

•

Advertising revenues such as the sale of banners are recognized on accrual basis, and MercadoClics services or sponsorship of sites are recognized based on per-click values and as the impressions are delivered.

Credit Cards Receivables

Credit cards receivables from customers mainly relate to the Company’s payments solution and arise due to the time taken to clear transactions through external payment networks or during a short period of time until those credit cards receivables are sold to financial institutions.

The company maintains allowances for doubtful accounts for estimated losses that may result from the inability of its customers to make required payments. Allowances are based upon several factors including, but not limited to, historical experience and the current condition of specific customers.

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

Summary of Significant Accounting Policies (Continued)

Credit Cards Receivables (Continued)

Credit cards receivables are presented net of the related allowance for doubtful accounts and chargebacks.

As of June 30, 2011, there are no past due credit card receivables.

Foreign Currency Translation

All of the Company’s foreign operations have determined the local currency to be their functional currency, except for Venezuela, as described below. 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 accumulated 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 results are included in the consolidated statements of income under the caption “Foreign currency loss” and amounted to $(702,714) and $(35,478) for the three-month periods ended June 30, 2011 and 2010, respectively. For the six-month periods ended June 30, 2011 and 2010, “Foreign currency (loss) / gain” amounted to $(1,203,369) and $361,494, respectively

Until September 30, 2009, the Company translated its Venezuelan subsidiaries assets, liabilities, income and expense accounts at the official rate of 2.15 “Bolivares Fuertes” per US dollar.

Starting in the fourth quarter of 2009, as a result of the changes in facts and circumstances that affected the Company’s ability to convert currency for dividends remittances using the official exchange rate in Venezuela, the Venezuelan subsidiaries assets, liabilities, income and expense accounts were translated using the parallel exchange rate resulting in the recognition in that quarter of a currency translation loss adjustment of $16,977,276 recorded in accumulated other comprehensive income/(loss). The average exchange rate used for translating the fourth quarter of 2009 results was 5.67 “Bolivares Fuertes” per US dollar and the year-end exchange rate used for translating assets and liabilities was 6.05 “Bolivares Fuertes” per US dollar.

As of the date of these interim condensed consolidated financial statements the Company did not buy US dollars at the official rate of 2.15 “Bolivares Fuertes” per US dollar.

According to US GAAP, we have transitioned our Venezuelan operations to highly inflationary status as of January 1, 2010 considering the US dollar as the functional currency. See “Highly inflationary status in Venezuela” below.

Therefore, no translation effect was accounted for in other comprehensive income since January 1, 2010 related to our Venezuelan operations.

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

Summary of Significant Accounting Policies (Continued)

Foreign Currency Translation (Continued)

Until May 13, 2010, the only way by which US dollars could be purchased outside the official currency market was using an indirect mechanism consisting in the purchase and sale of securities, including national public debt bonds (DPNs) denominated in Bolivares Fuertes and bonds issued by the government that were denominated in U.S. dollars. This mechanism for transactions in certain securities created an indirect “parallel” foreign currency exchange market in Venezuela that enabled entities to obtain foreign currency through financial brokers without going through Commission for the Administration of Foreign Exchange (“CADIVI”). Although the parallel exchange rate was higher, and accordingly less beneficial, than the official exchange rate, some entities used the “parallel” market to exchange currency because of the delays of CADIVI in approving in a timely manner the exchange of currency requested by such entities. Until May 13, 2010, our Venezuelan subsidiaries used this mechanism to buy US dollars and accordingly we used the parallel average exchange rate to re-measure those foreign currency transactions.

However, on May 14th, 2010, the Venezuelan government enacted reforms to its exchange regulations and close-down such parallel market by declaring that foreign-currency-denominated securities issued by Venezuelan entities were included in the definition of foreign currency, thus making the Venezuelan Central Bank (BCV) the only institution that could legally authorize the purchase or sale of foreign currency bonds, thereby excluding non-authorized brokers from the foreign exchange market.

Trading of foreign currencies was re-opened as a regulated market on June 9, 2010 with the Venezuelan Central Bank as the only institution through which foreign currency-denominated transactions can be brokered. Under the new system, known as the Foreign Currency Securities Transactions System (SITME), entities domiciled in Venezuela can buy U.S. dollar—denominated securities only through banks authorized by the BCV to import goods, services or capital inputs. Additionally, the SITME imposes volume restrictions on an entity’s trading activity, limiting such activity to a maximum equivalent of $50,000 per day, not to exceed $350,000 in a calendar month. This limitation is non-cumulative, meaning that an entity cannot carry over unused volume from one month to the next.

As a consequence of this new system, commencing on June 9, 2010, we have transitioned from the parallel exchange rate to the SITME rate and started re-measuring foreign currency transactions using the SITME rate published by BCV, which was 5.27 “Bolivares Fuertes” per U.S. dollar as of June 9, 2010.

For the period beginning on May 14, 2010 and ending on June 8, 2010 (during which there was no open foreign currency markets) we applied US GAAP guidelines, which state that if exchangeability between two currencies is temporarily lacking at the transaction date or balance sheet date, the first subsequent rate at which exchanges could be made shall be used.

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

Summary of Significant Accounting Policies (Continued)

Foreign Currency Translation (Continued)

Accordingly, the June 9, 2010 exchange rate published by the Venezuelan Central Bank has been used to re-measure transactions during the abovementioned period. As of June 30, 2011, the exchange rate used to re-measure transactions is 5.30 “Bolivares Fuertes” per U.S. dollar.

The following table sets forth the assets, liabilities and net assets of the Company’s Venezuelan subsidiaries, before intercompany eliminations, as of June 30, 2011 and December 31, 2010.


	June 30,			December 31,
	2011			2010

Venezuelan operations
Assets	$	21,299,401		$	21,928,340
Liabilities		(7,547,390	)		(8,212,581	)
Net Assets		13,752,011			13,715,759

As of June 30, 2011, net assets of the Venezuelan subsidiaries (before intercompany eliminations) amount to approximately 7.0% of our consolidated net assets, and cash and investments of the Venezuelan subsidiaries held in local currency in Venezuela amount to approximately 2.9% of our consolidated cash and investments.

Although, the current mechanisms available to obtain US dollars for dividends distributions to shareholders outside Venezuela imply increased restrictions, the Company does not expect that the current restrictions to purchase dollars have a significant adverse effect on its business plans with regard to the investment in Venezuela.

Highly inflationary status in Venezuela

During May 2009, the International Practices Task Force discussed the highly inflationary status of the Venezuelan economy. Historically, the Task Force has used the Consumer Price Index (CPI) when considering the inflationary status of the Venezuelan economy.

The CPI has existed since 1984. However, the CPI covers only the cities of Caracas and Maracaibo. Commencing on January 1, 2008, the National Consumer Price Index (NCPI) has been developed to cover the entire country of Venezuela. Since inflation data is not available to compute a cumulative three year inflation rate for the entire country solely based on the NCPI, the Company uses a blended rate using the NCPI and CPI to calculate Venezuelan inflation rate.

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

Summary of Significant Accounting Policies (Continued)

Foreign Currency Translation (Continued)

The cumulative three year inflation rate as of December 31, 2009 was calculated using the CPI information for periods before January 1, 2008 and NCPI information for the period after January 1, 2008. The blended CPI/NCPI three-year inflation index (23 months of NCPI and 13 months of CPI) as of November 30, 2009 exceeded 100%. According to US GAAP, calendar year-end companies should apply highly inflationary accounting as from January 1, 2010. Therefore, the Company transitioned its Venezuelan operations to highly inflationary status as of January 1, 2010 considering the US dollar as the functional currency.

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 $5,288,963 and $3,616,846 for the three-month periods ended June 30, 2011 and 2010, respectively. Taxes on revenues totaled $9,750,510 and $6,624,934 for the six-month periods ended June 30, 2011 and 2010, respectively.

Income and Asset Taxes

The Company is subject to U.S. and foreign income taxes. The Company accounts for income taxes following the liability method of accounting which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred tax assets are also recognized for tax loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets or liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded when, based on the available evidence, it is more likely than not that all or a portion of the Company’s deferred tax assets will not be realized. The Company’s income tax expense consists of taxes currently payable, if any, plus the change during the period in the Company’s deferred tax assets and liabilities.

From fiscal year 2008 to fiscal year 2014, 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, until fiscal year 2014. Aggregate tax benefit totaled $1,356,432 and $1,180,802 for the three-month periods ended June 30, 2011 and 2010, respectively. Aggregate tax benefit totaled $2,535,435 and $1,970,487 for the six-month periods ended June 30, 2011 and 2010, respectively. Aggregate per share effect of the Argentine tax holiday amounts to $0.03 and $0.03 for the three-month periods ended June 30, 2011 and 2010, respectively. Aggregate per share effect of the Argentine tax holiday amounts to $0.06 and $0.04 for the six-month periods ended June 30, 2011 and 2010, respectively. If the Company had not been granted the Argentine tax holiday, the Company would have pursued an alternative tax planning strategy and, therefore, the impact of not having this particular benefit would not necessarily be the abovementioned dollar and per share effect.

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

Summary of Significant Accounting Policies (Continued)

Income and Asset Taxes (Continued)

As of June 30, 2011 and December 31, 2010, MercadoLibre, Inc has included in the non-current deferred tax assets line the foreign tax credits related to the dividend distributions received from its subsidiaries for a total amount of $1,395,465 and $2,436,224, respectively. Those foreign tax credits will be used to offset the future domestic income tax payable.

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.

Comprehensive Income

Comprehensive income is comprised of two components, net income and other comprehensive income (loss), and defined as all other changes in equity of the Company that result from transactions other than with shareholders. Other comprehensive income (loss) includes the cumulative translation adjustment relating to the translation of the financial statements of the Company’s foreign subsidiaries and unrealized gains on investments classified as available-for-sale securities. Total comprehensive income for the three-month periods ended June 30, 2011 and 2010 amounted to $18,052,267 and $10,420,151, respectively and for the six-month periods ended June 30, 2011 and 2010 amounted to $32,935,048 and $19,411,086 respectively.

Recent Accounting Pronouncements

Presentation of Comprehensive Income

On June 16, 2011 the Financial Accounting Standards Board (“FASB”) issued an amendment to disclosures about the presentation of the comprehensive income in the financial statements. The new guidance provides two ways to present the components of the comprehensive income, in either (a) a continuous statement of comprehensive income, or (b) two separate but consecutive statements. The amended disclosures about the presentation of the comprehensive income in the financial statements are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company does not expect to have a significant impact on the presentation of the consolidated financial statements.

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

Summary of Significant Accounting Policies (Continued)

Recent Accounting Pronouncements (Continued)

Fair value measurement and disclosure

In May 2011, the FASB issued new accounting guidance that amends some fair value measurement principles and it expands the ASC 820 existing disclosure requirements for fair value measurements. The new guidance states that the concepts of highest and best use and valuation premise are only relevant when measuring the fair value of nonfinancial assets and prohibits the grouping of financial instruments for purposes of determining their fair values when the unit of account is specified in other guidance. We will adopt this accounting standard upon its effective date for periods ending on or after December 15, 2011, and do not anticipate that this adoption will have a significant impact on our financial position or results of operations.

Net Income per Share

Basic earnings per share for the Company’s common stock is computed by dividing net income available to common shareholders attributable to common stock 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 were participating securities. Accordingly, net income available to common stockholders for the three- and six month periods ended June 30, 2010, 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.

The following table shows how net income available to common shareholders is allocated using the two-class method, for the three-month periods ended June 30, 2011 and 2010:

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

Net Income per Share (Continued)


	Three Months Ended June 30,
	2011				2010
	Basic		Diluted		Basic		Diluted

Net income	$	14,820,826	$	14,820,826	$	11,673,963	$	11,673,963


Net income available to common shareholders attributable to unvested restricted shares		—		—		1,724		1,724


Net income available to common shareholders attributable to common stock	$	14,820,826	$	14,820,826	$	11,672,239	$	11,672,239

The following table shows how net income available to common shareholders is allocated using the two-class method, for the six-month periods ended June 30, 2011 and 2010:


	Six Months Ended June 30,
	2011				2010
	Basic		Diluted		Basic		Diluted

Net income	$	28,878,459	$	28,878,459	$	21,294,563	$	21,294,563


Net income available to common shareholders attributable to unvested restricted shares		—		—		3,583		3,583


Net income available to common shareholders attributable to common stock	$	28,878,459	$	28,878,459	$	21,290,980	$	21,290,980

Net income per share of common stock is as follows for the three-month periods ended June 30, 2011 and 2010:


	Three Months Ended June 30,
	2011				2010
	Basic		Diluted		Basic		Diluted

Net income available to common shareholders per common share	$	0.34	$	0.34	$	0.26	$	0.26


Numerator:
Net income available to common shareholders	$	14,820,826	$	14,820,826	$	11,672,239	$	11,672,239


Denominator:
Weighted average of common stock outstanding for Basic earnings per share		44,138,105		44,138,105		44,121,087		44,121,087
Adjustment for stock options		—		9,487		—		14,811
Adjustment for shares granted under LTRP		—		4,704		—		9,357

Adjusted weighted average of common stock outstanding for Diluted earnings per share		44,138,105		44,152,296		44,121,087		44,145,255

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

Net Income per Share (Continued)

Net income per share of common stock is as follows for the six-month periods ended June 30, 2011 and 2010:


	Six Months Ended June 30,
	2011				2010
	Basic		Diluted		Basic		Diluted

Net income available to common shareholders per common share	$	0.65	$	0.65	$	0.48	$	0.48


Numerator:
Net income available to common shareholders	$	28,878,459	$	28,878,459	$	21,290,980	$	21,290,980


Denominator:
Weighted average of common stock outstanding for Basic earnings per share		44,134,763		44,134,763		44,117,364		44,117,364
Adjustment for stock options		—		10,480		—		16,454
Adjustment for shares granted under LTRP		—		4,668		—		9,011
Adjusted weighted average of common stock outstanding for Diluted earnings per share		44,134,763		44,149,911		44,117,364		44,142,829

The calculation of diluted net income per share excludes all anti-dilutive shares. For the three- and six-month periods ended June 30, 2011 and 2010, there were no anti-dilutive shares.

Goodwill and Intangible Assets

The composition of goodwill and intangible assets is as follows:


	June 30,			December 31,
	2011			2010
Goodwill	$	61,356,716		$	60,496,314

Intangible assets with indefinite lives
- Trademarks		2,514,136			2,460,952
Amortizable intangible assets
- Licenses and others		2,659,646			2,606,402
- Non-compete agreement		1,281,426			1,241,357
- Customer list		1,623,928			1,607,097

Total intangible assets	$	8,079,136		$	7,915,808
Accumulated amortization		(4,260,072	)		(3,774,641	)

Total intangible assets, net	$	3,819,064		$	4,141,167

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

Goodwill and Intangible Assets (Continued)

Goodwill

The changes in the carrying amount of goodwill for the six-month period ended June 30, 2011 and the year ended December 31, 2010, are as follows:


	Six Months Ended June 30, 2011
															Other
	Brazil		Argentina			Chile			Mexico		Venezuela		Colombia		Countries		Total
Balance, beginning of year	$	13,130,649	$	23,364,326		$	7,296,888		$	5,025,623	$	4,846,030	$	5,448,068	$	1,384,730	$	60,496,314
- Effect of exchange rates change		884,011		(761,757	)		(2,182	)		282,382		—		409,548		48,400		860,402

Balance, end of the period	$	14,014,660	$	22,602,569		$	7,294,706		$	5,308,005	$	4,846,030	$	5,857,616	$	1,433,130	$	61,356,716


	Year Ended December 31, 2010
														Other
	Brazil		Argentina			Chile		Mexico		Venezuela		Colombia		Countries		Total
Balance, beginning of year	$	12,565,062	$	24,446,463		$	6,734,405	$	4,770,560	$	4,846,030	$	5,100,939	$	1,359,287	$	59,822,746
- Effect of exchange rates change		565,587		(1,082,137	)		562,483		255,063		—		347,129		25,443		673,568

Balance, end of the year	$	13,130,649	$	23,364,326		$	7,296,888	$	5,025,623	$	4,846,030	$	5,448,068	$	1,384,730	$	60,496,314

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 $242,401 and $207,486 for the three-month periods ended June 30, 2011 and 2010, respectively. Aggregate amortization expense for intangible assets totaled $478,522 and $380,347 for the six-month periods ended June 30, 2011 and 2010, respectively.

Expected future intangible asset amortization from acquisitions completed as of June 30, 2011 is as follows:


For year ended 12/31/2011	$	385,759
For year ended 12/31/2012		646,539
For year ended 12/31/2013		270,611
For year ended 12/31/2014		2,019

	$	1,304,928

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.

Segment reporting is based on geography as the main basis of segment breakdown to reflect the evaluation of the Company’s performance defined by the management.

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

Segments (Continued)

The MercadoLibre segments include Brazil, Argentina, Mexico, Venezuela and other countries (such as Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Panama, Peru, Portugal and Uruguay).

Direct contribution consists of net revenues from external customers 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. All corporate related costs have been excluded from the Company’s direct contribution.

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 June 30, 2011
													Other
	Brazil			Argentina			Mexico			Venezuela			Countries			Total

Net revenues	$	39,932,132		$	12,391,873		$	5,370,095		$	7,234,940		$	4,449,120		$	69,378,160
Direct costs		(23,926,947	)		(5,153,807	)		(2,982,020	)		(2,847,197	)		(2,493,570	)		(37,403,541	)

Direct contribution		16,005,185			7,238,066			2,388,075			4,387,743			1,955,550			31,974,619

Operating expenses and indirect costs of net revenues																	(10,423,222	)

Income from operations																	21,551,397


Other income (expenses):
Interest income and other financial gains																	2,249,898
Interest expense and other financial results																	(880,819	)
Foreign currency losses																	(702,714	)
Other income, net																	240,097

Net income before income / asset tax expense																$	22,457,859

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

Segments (Continued)


	Three Months Ended June 30, 2010
													Other
	Brazil			Argentina			Mexico			Venezuela			Countries			Total

Net revenues	$	30,781,411		$	9,452,261		$	4,669,349		$	4,468,146		$	3,139,164		$	52,510,331
Direct costs		(15,992,598	)		(4,686,452	)		(2,830,282	)		(2,192,418	)		(1,741,164	)		(27,442,914	)

Direct contribution		14,788,813			4,765,809			1,839,067			2,275,728			1,398,000			25,067,417

Operating expenses and indirect costs of net revenues																	(6,252,850	)

Income from operations																	18,814,567


Other income (expenses):
Interest income and other financial gains																	917,388
Interest expense and other financial results																	(3,355,921	)
Foreign currency losses																	(35,478	)

Net income before income / asset tax expense																$	16,340,556


	Six Months Ended June 30, 2011
													Other
	Brazil			Argentina			Mexico			Venezuela			Countries			Total

Net revenues	$	74,655,327		$	22,971,805		$	10,604,428		$	14,005,393		$	8,600,875		$	130,837,828
Direct costs		(44,002,555	)		(9,580,905	)		(5,698,379	)		(5,916,936	)		(4,593,885	)		(69,792,660	)

Direct contribution		30,652,772			13,390,900			4,906,049			8,088,457			4,006,990			61,045,168

Operating expenses and indirect costs of net revenues																	(20,202,618	)

Income from operations																	40,842,550


Other income (expenses):
Interest income and other financial gains																	4,123,668
Interest expense and other financial results																	(1,509,769	)
Foreign currency losses																	(1,203,369	)
Other income, net																	260,441

Net income before income / asset tax expense																$	42,513,521


	Six Months Ended June 30, 2010
													Other
	Brazil			Argentina			Mexico			Venezuela			Countries			Total

Net revenues	$	57,132,883		$	17,806,507		$	9,139,286		$	7,943,636		$	6,425,793		$	98,448,105
Direct costs		(30,855,058	)		(8,632,236	)		(5,630,639	)		(4,106,474	)		(3,464,689	)	$	(52,689,096	)

Direct contribution		26,277,825			9,174,271			3,508,647			3,837,162			2,961,104			45,759,009

Operating expenses and indirect costs of net revenues																	(11,440,176	)

Income from operations																	34,318,833


Other income (expenses):
Interest income and other financial gains																	1,711,529
Interest expense and other financial results																	(6,351,339	)
Foreign currency gains																	361,494

Net income before income / asset tax expense																$	30,040,517

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

Segments (Continued)

The following table summarizes the allocation of the long-lived tangible assets based on geography:


	June 30,		December 31,
	2011		2010
US long-lived tangible assets	$	6,152,698	$	3,617,420
Other countries long-lived tangible assets
Argentina		14,131,697		13,580,175
Brazil		3,303,186		3,264,625
Mexico		517,919		68,878
Venezuela *()**		6,789,815		206,815
Other countries		421,073		79,799

	$	25,163,690	$	17,200,292
Total long-lived tangible assets	$	31,316,388	$	20,817,712


(*)		On June 2, 2011, the Company’s Venezuelan subsidiary acquired an office property of 992 square meters in a building located in Caracas, Venezuela. The purchase price of $6.6 million was paid in cash

The following table summarizes the allocation of the goodwill and intangible assets based on geography:


	June 30,		December 31,
	2011		2010
US intangible assets	$	—	$	3,507
Other countries goodwill and intangible assets
Argentina		23,735,108		24,825,718
Brazil		14,019,678		13,137,658
Mexico		5,320,769		5,043,335
Venezuela		6,595,503		6,595,866
Other countries		15,504,722		15,031,397

	$	65,175,780	$	64,633,974
Total goodwill and intangible assets	$	65,175,780	$	64,637,481

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

Fair Value Measurement of Assets and Liabilities

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2011 and December 31, 2010:


			Quoted Prices in				Quoted Prices in
	Balances as of		active markets for		Balances as of		active markets for
	June 30,		identical Assets		December 31,		identical Assets
Description	2011		(Level 1)		2010		(Level 1)
Assets
Cash and Cash Equivalents:
Money Market Funds	$	11,651,812	$	11,651,812	$	14,578,477	$	14,578,477
Investments:
Asset backed securities		19,999,835		19,999,835		14,319,103		14,319,103
Sovereign Debt Securities		12,050,647		12,050,647		13,147,239		13,147,239
Corporate Debt Securities		19,721,642		19,721,642		11,381,761		11,381,761

Total financial Assets	$	63,423,936	$	63,423,936	$	53,426,580	$	53,426,580

The Company’s financial assets are valued using market prices on active markets (level 1). Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. As of June 30, 2011 and December 31, 2010, the Company did not have any assets obtained from readily-available pricing sources for comparable instruments (level 2) or without observable market values that would require a high level of judgment to determine fair value (level 3).

The unrealized net gains on short term and long term investments are reported as a component of accumulated other comprehensive income. The Company does not anticipate any significant realized losses associated with those investments in excess of the Company’s historical cost.

In addition, as of June 30, 2011, the Company had $70,812,920 of short-term investments, which consisted of time deposits maintained as held to maturity investments. As of December 31, 2010, the Company had $45,340,944 of short-term and long-term investments, which consisted of time deposits considered held to maturity securities. Those investments are accounted for at amortized cost which, as of June 30, 2011 and December 31, 2010, approximates their fair values.

As of June 30, 2011 and December 31, 2010, the carrying value of the Company’s cash and cash equivalents approximated their fair value which was held primarily in money markets funds and bank deposits. In addition, the carrying value of accounts receivables, funds receivables from customers, other receivables, other assets, accounts payables, social security payables, taxes payables, loans and provisions and other liabilities approximates their fair values because of its short term maturity.

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

Fair Value Measurement of Assets and Liabilities (Continued)

For the three- and six-month periods ended June 30, 2011 and 2010, the Company held no direct investments in auction rate securities, collateralized debt obligations, structured investment vehicles. As of June 30, 2011 and December 31, 2010, the Company does not have any non-financial assets or liabilities measured at fair value.

As of June 30, 2011 and December 31, 2010, the fair value of short and long-term investments classified as available for sale securities are as follows:


	June 30, 2011
	Gross		Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value
Short-term investments
Sovereign Debt Securities	$	1,138,586	$	—	$	(312	)	$	1,138,274
Corporate Debt Securities		437,786		—		(4,960	)		432,826

Total Short-term investments	$	1,576,372	$	—	$	(5,272	)	$	1,571,100


Long-term investments
Sovereign Debt Securities	$	10,813,741	$	116,443	$	(17,811	)	$	10,912,373
Corporate Debt Securities		19,164,588		144,025		(19,797	)		19,288,816
Asset Backed Securities (2)		19,639,833		383,737		(23,735	)		19,999,835

Total Long-term investments	$	49,618,162	$	644,205	$	(61,343	)	$	50,201,024


Total	$	51,194,534	$	644,205	$	(66,615	)	$	51,772,124


	December 31, 2010
	Gross		Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated Fair
	Cost		Gains		Losses (1)			Value
Short-term investments
Corporate Debt Securities	$	398,752	$	26	$	(773	)	$	398,005

Total short-term investments	$	398,752	$	26	$	(773	)	$	398,005


Long-term investments
Sovereign Debt Securities	$	13,282,207	$	98,958	$	(233,926	)	$	13,147,239
Corporate Debt Securities		10,987,910		110,521		(114,675	)		10,983,756
Asset Backed Securities		14,107,501		439,239		(227,637	)		14,319,103

Total long-term investments	$	38,377,618	$	648,718	$	(576,238	)	$	38,450,098


Total	$	38,776,370	$	648,744	$	(577,011	)	$	38,848,103


(1)		Unrealized losses from securities are primarily attributable to market price movements. Management does not believe any remaining unrealized losses represent other-than-temporary impairments based on our evaluation of available evidence including the credit rating of the investments, as of June 30, 2011 and December 31, 2010.

(2)		Asset backed securities have investment grade credit ratings. These investments are collateralized by real estate and they are guaranteed by the U.S. Federal Government.

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

Fair Value Measurement of Assets and Liabilities (Continued)

As of June 30, 2011, the estimated fair values of short-term and long-term investments classified by its contractual maturities are as follows:


One year or less	$	1,571,100
One year to two years		8,834,616
Two years to three years		2,314,297
Three years to four years		4,962,506
Four years to five years		3,322,803
More than five years		30,766,802

Total	$	51,772,124

Compensation Plan for Outside Directors

The Company compensated its outside directors through the payment of cash fees and, from time to time, through the issuance of equity awards.

On June 10, 2009, the Company issued an aggregate of 2,305 shares of common stock and 8,350 restricted shares of common stock (the “Restricted Shares”) to our outside directors. The Restricted Shares vested in full in June 2010. Restricted Shares awarded to employees and directors are measured at their fair market value using the grant-date price of the Company’s shares. For the three- and six-month periods ended June 30, 2010, the Company recognized $16,492 and $37,696, respectively, of compensation expense related to these awards, which are included in operating expenses in the accompanying condensed consolidated statement of income.

The total accrued compensation cost for the three-month periods ended June 30, 2011 and 2010 in cash and equity awards amounts to $194,218 and $78,682, respectively which were included in operating expenses. For the six-month periods ended June 30, 2011 and 2010, the Company recognized $323,353 and $147,229 respectively, which amounts are included in operating expenses in the accompanying condensed consolidated statement of income.

Commitments and Contingencies

Litigation and Other Legal Matters

The Company is subject to certain contingent liabilities with respect to existing or potential claims, lawsuits and other proceedings. The Company accrues liabilities when it considers probable that future costs will be incurred and such costs can be reasonably estimated. The proceeding-related reserve is based on developments to date and historical information related to actions filed against the Company. As of June 30, 2011, the Company had established reserves for proceeding-related contingencies of $2,141,346 to cover legal actions against the Company. In addition, as of June 30, 2011 the Company and its subsidiaries are subject to certain legal actions considered by the Company’s management and its legal counsels to be reasonably possible for an aggregate amount up to $4,447,838.

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

Commitments and Contingencies (Continued)

Litigation and Other Legal Matters (Continued)

No loss amount has been accrued for such possible legal actions of which most significant (individually or in the aggregate) are described below.

As of June 30, 2011, 348 legal actions were pending in the Brazilian ordinary courts, 8 of which were related to alleged intellectual property infringement. In addition, as of June 30, 2011, there were more than 1,719 cases still pending in Brazilian consumer courts. Filing and pursuing of an action before Brazilian consumer courts do not require the assistance of a lawyer. In most of the cases filed against the Company, the plaintiffs asserted that the Company was responsible for fraud committed against them, or responsible for damages suffered when purchasing an item on the Company’s website, when using MercadoPago, or when the Company invoiced them.

On March 17, 2006, Vintage Denim Ltda., or Vintage, sued the Company’s Brazilian subsidiaries MercadoLivre.com Atividades de Internet Ltda. and eBazar.com.br Ltda. in the 29th Civil Court of the County of São Paulo, State of São Paulo, Brazil. Vintage requested a preliminary injunction alleging that these subsidiaries were infringing Diesel trademarks and their right of exclusive distribution as a result of sellers listing allegedly counterfeit and original imported Diesel branded clothing through the Brazilian page of the Company’s website, based on Brazilian Industrial Property Law (Law 9,279/96). Vintage sought an order enjoining the sale of Diesel-branded clothing on the Company’s platform. A preliminary injunction was granted on April 11, 2006 to prohibit the offer of Diesel-branded products, and a fine for non-compliance was imposed in the approximate amount of $5,300 per defendant per day of non-compliance. The Company appealed that fine and obtained its suspension in 2006. Because the appeal of the preliminary injunction failed, in March of 2007, Vintage presented petitions alleging the Company’s non-compliance with the preliminary injunction granted to Vintage and requested a fine of approximately $3.3 million against the Company’s subsidiaries, which represents approximately $5,300 per defendant per day of alleged non-compliance since April 2006. In July 2007, the judge ordered the payment of the fine mandated in the preliminary injunction, without specifying the amount. In September 2007, the judge decided that (i) the Brazilian subsidiaries were not responsible for alleged infringement of intellectual property rights by its users; and that (ii) the plaintiffs did not prove the alleged infringement of its intellectual property rights. However, the decision maintained the injunction until such ruling is non-appealable. The plaintiff appealed the judge’s ruling regarding the subsidiary’s non-responsibility and the Company appealed the decision that maintained the preliminary injunction. On July 26, 2011, the State of Appeals of the State of São Paulo confirmed the judge’s ruling regarding our subsidiary’s non-responsibility. The decision on the appeal regarding the decision that maintained the preliminary injunction is still pending. In the opinion of the Company’s legal counsel, as of June 30, 2011, the probable loss amounts to $270,642 and a remaining amount of $1,907,309 was not reserved since it was considered reasonably possible but not probable.

State of São Paulo Fraud Claim

On June 12, 2007, a state prosecutor of the State of São Paulo, Brazil presented a claim against the Brazilian subsidiary. The state prosecutor alleges that the Brazilian subsidiary

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

Commitments and Contingencies (Continued)

Litigation and Other Legal Matters (Continued)

State of São Paulo Fraud Claim (Continued)

should be held liable for any fraud committed by sellers on the Brazilian version of the Company’s website, or responsible for damages suffered by buyers when purchasing an item on the Brazilian version of the MercadoLibre website. On June 26, 2009, the Lower Court Judge ruled in favor of the State of São Paulo prosecutor, declaring that the Brazilian subsidiary shall be held joint and severally liable for fraud committed by sellers and damages suffered by buyers when using the website, and ordering the Brazilian subsidiary to remove from the Terms of Service of the Brazilian website any provision limiting the Company’s responsibility, with a penalty of approximately $2,500 per day of non-compliance. On June 29, 2009 the Company presented a recourse to the lower court, which was not granted. On September 29, 2009 the Company presented an appeal and requested to suspend the effects of the ruling issued by the lower court until the appeal is decided by State Court of Appeals, which request was granted on December, 1, 2009. The decision on the appeal is still pending. In the opinion of the Company’s management and its legal counsel the risk of loss is reasonably possible.

City of São Paulo Tax Claim

In 2007 São Paulo tax authorities have asserted taxes and fines against our Brazilian subsidiary relating to the period from 2005 to 2007 in an approximate amount of $5.9 million according to the exchange rate at that moment. In 2007 the Company presented administrative defenses against the authorities’ claim and the tax authorities ruled against the Brazilian subsidiary. In 2009 the Company presented an appeal to the Conselho Municipal de Tributos or São Paulo Municipal Council of Taxes which reduced the fine. On February 11, 2011, the Company appealed this decision to the Câmaras Reunidas do Egrégio Conselho Municipal de Tributos or Superior Chamber of the São Paulo Municipal Council of Taxes which maintained the reduction of the Infraction. As of the date of these financial statements, the total amount of the claim is approximately $5.8 million including surcharges and interest. With this decision the administrative stage is finished, therefore the Company will contest the tax and the fine in the justice. The Company ´s management and its legal advisors believe that the risk of loss is remote, and as a result, has not reserved any provisions for this claim.

State of São Paulo Customer Service Level Claim

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

Commitments and Contingencies (Continued)

Litigation and Other Legal Matters (Continued)

State of São Paulo Customer Service Level Claim (Continued)

within 60 days with a penalty of approximately $65,000 per day of non-compliance. On April 08, 2011, the Company was summoned of the lawsuit and the injunction. On April 14, 2011, the Company presented recourse to the lower court; even though, the injunction was not lifted, an extension of 30 days was granted, and the non-compliance fine would start running as of July 11, 2011. On April 20, 2011 the Company presented an appeal and requested to suspend the effects of the injunction issued by the lower court until the appeal is decided by State Court of Appeals which was granted on May 4, 2011. In the opinion of the Company’s management and its legal counsel the risk associated with this claim is approximately $384,000 which considered reasonably possible.

State of Rio de Janeiro Fraud Claim

On April 15, 2011, a state prosecutor of the State of Rio de Janeiro, Brazil presented a claim against the Brazilian subsidiary. The state prosecutor requests several clauses of the Terms of Service of the Website shall be considered null and void. The prosecutor alleges that the Brazilian subsidiary should be held liable for any fraud committed by sellers on the Brazilian version of the Company’s website, or responsible for damages suffered by buyers when purchasing an item on the Brazilian version of the MercadoLibre website. On May 5, 2011, the Lower Court Judge granted an injunction in favor of the State of Rio de Janeiro prosecutor, declaring that several clauses in the Terms of Service of the Website that limit the responsibility of the Brazilian subsidiary shall be considered null and void and ordered the Brazilian subsidiary to remove them, with a penalty of approximately $640 per day of non-compliance. On July 8, 2011 the Company presented a recourse to the lower court requesting a suspension of the effects of the injunction. On July 13, 2011 the lower Court Judge suspended the injunction and set a hearing on July 20, 2011, however no settlement was reached by the parties on the hearing. The Company presented its defense on July 25, 2011. In the opinion of the Company’s management and its legal counsel the risk of loss is possible.

Other third parties have from time to time claimed, and others may claim in the future, that the Company was responsible for fraud committed against them, or that the Company has infringed their intellectual property rights. The underlying laws with respect to the potential liability of online intermediaries like the Company are unclear in the jurisdictions where the Company operates. Management believes that additional lawsuits alleging that the Company has violated copyright or trademark laws will be filed against the Company in the future.

Intellectual property and regulatory claims, whether meritorious or not, are time consuming and costly to resolve, require significant amounts of management time, could require expensive changes in the Company’s methods of doing business, or could require the Company to enter into costly royalty or licensing agreements. The Company may be subject to patent disputes, and be subject to patent infringement claims as the Company’s services expand in scope and complexity. In particular, the Company may face additional patent infringement claims involving various aspects of the Payments businesses.

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

Commitments and Contingencies (Continued)

Litigation and Other Legal Matters (Continued)

State of Rio de Janeiro Fraud Claim (Continued)

From time to time, the Company is involved in other disputes or regulatory inquiries that arise in the ordinary course of business. The number and significance of these disputes and inquiries are increasing as the Company’s business expands and the Company grows larger.

Long Term Retention Plan

On August 8, 2008, the Board of Directors approved an employee retention program that will be payable 50% in cash and 50% in shares, in addition to the annual salary and bonus of certain executives. Payments will be made in the first quarter on annual basis according to the following vesting schedule:

	•		Year 1 (2008): 17%

	•		Year 2 (2009): 22%

	•		Year 3 (2010): 27%

	•		Year 4 (2011): 34%

The shares granted for the 2008 LTRP were valued at the grant-date fair market value PF $36.8 per share. As of June 30, 2011, the Company paid the 66% related to the years one to three of the 2008 LTRP.

As a consequence of the departure of the Chief Financial Officer, for the three-month period ended June 30, 2011, the related accrued compensation was a gain of $27,435 corresponding $6,716 to the share portion of the award credited to Additional Paid-in Capital and $20,718 to the cash portion included in the Balance Sheet as Payroll and social security payable. For the six-month period ended June 30, 2011, the related accrued compensation expense was $42.383 corresponding $26,993 to the share portion of the award credited to Additional Paid-in Capital and $15,390 to the cash portion included in the Balance Sheet as Payroll and social security payable.

For the three-month period ended June 30, 2010, the related accrued compensation expense was $54,109 corresponding $29,636 to the share portion of the award credited to Additional Paid-in Capital and $24,473 to the cash portion included in the Balance Sheet as Payroll and social security payable.

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

Long Term Retention Plan (Continued)

For the six-month period ended June 30, 2010, the related accrued compensation expenses was $135,620 corresponding $64,012 to the share portion of the award credited to Additional Paid-in Capital and $71,608 to the cash portion included in the Balance Sheet as Social security payable.

On June 15, 2009, June 25, 2010 and August 1, 2011, the Board of Directors, upon the recommendation of the compensation Committee approved the 2009, the 2010 and the 2011 employee retention programs (“the 2009, 2010 and 2011 LTRP”). The 2011 LTRP was approved by the Compensation Committee on June 27, 2011. The awards under the 2009, 2010 and 2011 LTRP are fully payable in cash in addition to the annual salary and bonus of each employee.

The 2009, 2010 and 2011 LTRP will be paid in 8 equal annual quotas (12.5% each) commencing on March 31, 2010, March 31, 2011 and March 31, 2012, respectively. Each quota is calculated as follows:

	•		6.25% of the amount is calculated in nominal terms (“the nominal basis share”),

	•		6.25% is adjusted by multiplying the nominal amount by the average closing stock price for the last 60 trading days of the year previous to the payment date and divided by the average closing stock price for the last 60 trading days of 2008, 2009 and 2010 for the 2009, 2010 and 2011 LTRP, respectively. The average closing stock price for the 2009, 2010 and 2011 LTRP amounted to $13.81, $45.75 and $65.41, respectively (“the variable share”).

The 2008, 2009, 2010 and 2011 LTRP have performance and/or eligibility conditions to be achieved at each year end and also require the employee to stay in the Company at the payment date.

The 2008 LTRP compensation cost and the variable share compensation cost of the 2009, 2010 and 2011 LTRP are recognized in accordance with the graded-vesting attribution method and are accrued up to each payment date. The 2009, 2010 and 2011 LTRP nominal basis share are recognized in straight line bases using the equal annual accrual method.

The following tables summarize the LTRP accrued compensation expense for the three- and six-month periods ended June 30, 2011 and 2010:


	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010

LTRP 2009	$	490,139	$	449,350	$	1,009,225	$	709,040
LTRP 2010		309,495		350,670		817,471		659,991
LTRP 2011		430,651		—		761,485		—

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

10.

Cash dividend distribution

On July 15, 2011, the Company paid the second quarterly cash dividend distribution of $3.5 million or $0.08 per share, which was approved on May 2, 2011 by the Board of Directors.

* * * *


Item 2		— Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Regarding Forward-Looking Statements

Certain statements regarding our future performance made or implied in this report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words “anticipate,” “believe,” “expect,” “intend,” “plan,” “estimate,” “target,” “project,” “should,” “may,” “could,” “will” and similar words and expressions are intended to identify forward-looking statements. Forward-looking statements generally relate to information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of future regulation and the effects of competition. Such forward-looking statements reflect, among other things, our current expectations, plans, projections and strategies, anticipated financial results, future events and financial trends affecting our business, all of which are subject to known and unknown risks, uncertainties and other important factors (in addition to those discussed elsewhere in this report) that may cause our actual results to differ materially from those expressed or implied by these forward-looking statements. These risks and uncertainties include, among other things:

	•		our expectations regarding the continued growth of online commerce and Internet usage in Latin America;

	•		our ability to expand our operations and adapt to rapidly changing technologies;

	•		government regulation;

	•		litigation and legal liability;

	•		systems interruptions or failures;

	•		our ability to attract and retain qualified personnel;

	•		consumer trends;

	•		security breaches and illegal uses of our services;

	•		competition;

	•		reliance on third-party service providers;

	•		enforcement of intellectual property rights;

	•		our ability to attract new customers, retain existing customers and increase revenues;

	•		seasonal fluctuations; and

	•		political, social and economic conditions in Latin America in general, and Venezuela and Argentina in particular, including Venezuela’s status as a highly inflationary economy and new exchange rate system.

Many of these risks are beyond our ability to control or predict. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

These statements are based on currently available information and our current assumptions, expectations and projections about future events. While we believe that our assumptions, expectations and projections are reasonable in view of the currently available information, you are cautioned not to place undue reliance on our forward-looking statements. These statements are not guarantees of future performance. They are subject to future events, risks and uncertainties — many of which are beyond our control — as well as potentially inaccurate assumptions that could cause actual results to differ materially from our expectations and projections. Some of the material risks and uncertainties (in addition to those referred to above and elsewhere in this report) that could cause actual results to differ materially from our expectations and projections are described in “Item 1A — Risk Factors” in Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 filed with the Securities and Exchange Commission on February 25, 2011.

You should read that information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I of this report and our unaudited condensed consolidated financial statements and related notes in Item 1 of Part I of this report. We note such information for investors as permitted by the Private Securities Litigation Reform Act of 1995. There also may be other factors that we cannot anticipate or that are not described in this report, generally because we do not perceive them to be material that could cause results to differ materially from our expectations.

Forward-looking statements speak only as of the date they are made, and we do not undertake to update these forward-looking statements except as may be required by law. You are advised, however, to review any further disclosures we make on related subjects in our periodic filings with the Securities and Exchange Commission.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The discussion and analysis of our financial condition and results of operations has been organized to present the following:

	•		a brief overview of our company;

	•		a discussion of our principal trends and results of operations for the quarters and six-month periods ended June 30, 2011 and 2010;

	•		a review of our financial presentation and accounting policies, including our critical accounting policies;

	•		a discussion of the principal factors that influence our results of operations, financial condition and liquidity;

	•		a discussion of our liquidity and capital resources, a discussion of our capital expenditures and a description of our contractual obligations; and

	•		a discussion of the market risks that we face.

Business Overview

MercadoLibre, Inc. (together with its subsidiaries “us”, “we”, “our” or the “company”) hosts the largest online commerce platform in Latin America located at www.mercadolibre.com, which is focused on enabling e-commerce and its related services. Our services are designed to provide our users with mechanisms for buying, selling, paying, collecting, generating leads and comparing transactions via e-commerce in an effective and efficient manner. We are market leaders in e-commerce in each of Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, Mexico, Peru, Uruguay and Venezuela, based on unique visitors and page views. Additionally, we also operate online commerce platforms in the Dominican Republic, Panama and Portugal.

Through our online commerce platform, we provide buyers and sellers with a robust online commerce environment that fosters the development of a large and growing e-commerce community in Latin America, a region with a population of over 550 million people and one of the fastest-growing Internet penetration rates in the world. We believe that we offer a technological and commercial solution that addresses the distinctive cultural and geographic challenges of operating an online commerce platform in Latin America.

We offer our users an eco-system of four related e-commerce services: the MercadoLibre Marketplace, the MercadoPago payments solution, the MercadoClics advertising program and the MercadoShops on-line stores solution.

The MercadoLibre Marketplace, which we sometimes refer to as our marketplace, is a fully-automated, topically-arranged and user-friendly online commerce service. This service permits both businesses and individuals to list items and conduct their sales and purchases online in either a fixed-price or auction-based format. Additionally, through online classified listings, our registered users can list and purchase motor vehicles, vessels, aircraft, real estate and services. Any Internet user can browse through the various products and services that are listed on our web site and register with MercadoLibre to list, bid for and purchase items and services.

To complement the MercadoLibre Marketplace, we developed MercadoPago, an integrated online payments solution. MercadoPago is designed to facilitate transactions both on and off the MercadoLibre Marketplace by providing a mechanism that allows our users to securely, easily and promptly send, receive and finance payments online.

As a further enhancement to the MercadoLibre Marketplace, in 2009, we launched our MercadoClics program to allow businesses to promote their products and services on the Internet. Through MercadoClics users and advertisers are able to place display and/or text advertisements on our web pages in order to promote their brands and offerings. MercadoClics offers advertisers a cost efficient and automated platform through which it will acquire traffic. Advertisers purchase, on a cost per clicks basis, advertising space that appear alongside product search results for specific categories and other pages. These advertising placements are clearly differentiated from product search results and direct traffic both to and off our platform based on the advertisers destination of choice.

To close out our suite of e-commerce services we launched, during 2010, the MercadoShops on-line stores solution. Through MercadoShops users can set-up, manage and promote their own on-line webstores. These webstores are hosted by MercadoLibre and offer integration with the other marketplace, payments and advertising services we offer. Users can choose from a basic, free webstore or pay monthly subscriptions for enhanced functionality and added services on their stores.

Reporting Segments

Our segment reporting is based on geographic areas, which is the current criteria we are using to evaluate our segment performance. Our geography segments include Brazil, Argentina, Mexico, Venezuela and other countries (such as Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Panama, Peru, Portugal and Uruguay).

In addition, we operate a real estate classifieds platform that covers some areas of Florida in the United States, the operations of which are included in our segment for “other countries”.

Recent Developments

2011 Long Term Retention Plan

On June 27, 2011, our Compensation Committee approved the 2011 Long Term Retention Plan (the “2011 LTRP”) which was adopted by our board of directors on August 1, 2011. If earned, payments to eligible employees under the 2011 LTRP will be in addition to payments of base salary and cash bonus, the latter if earned, made to these employees.

In order to receive an award under the 2011 LTRP, each eligible employee must satisfy the performance conditions established by the board of directors for him or her. If these conditions are satisfied, the eligible employee will, subject to his or her continued employment as of each applicable payment date, receive the full amount of his 2011 LTRP bonus, payable as follows:

	•		the eligible employee will receive a fixed cash payment equal to 6.25% of his or her 2011 LTRP bonus once a year for a period of eight years starting in 2012 (the “Annual Fixed Payment”); and

	•		on each date we pay the Annual Fixed Payment to an eligible employee, he or she will also receive a cash payment (the “Variable Payment”) equal to the product of (i) 6.25% of the applicable 2011 LTRP bonus and (ii) the quotient of (a) divided by (b), where (a), the numerator, equals the Applicable Year Stock Price (as defined below) and (b), the denominator, equals the 2010 Stock Price, defined as $65.41, which was the average closing price of our common stock on the NASDAQ Global Market during the final 60 trading days of 2010. The “Applicable Year Stock Price” shall equal the average closing price of our common stock on the NASDAQ Global Market during the final 60 trading days of the year preceding the applicable payment date.

The compensation cost related to the Annual Fixed Payments is recognized on a straight line basis using the equal annual accrual method. The compensation cost related to the Variable Payments is recognized in accordance with the graded-vesting attribution method and is accrued up to each payment day.

As of June 30, 2011, the total compensation cost of the 2011 LTRP is expected to be approximately $6.1 million and the related accrued compensation expense for the six-month period ended June 30, 2011 was $0.8 million.

Acquisition of office space in Venezuela

On June 2, 2011, MercadoLibre Venezuela S.A. a subsidiary of MercadoLibre, Inc. (the “Company”) entered into an agreement with Inversiones 1182450, C.A. to acquire an office property of 992 square meters in a building named Torre La Castellana, located in Avenida Eugenio Mendoza, La Castellana, Municipality of Chacao, State of Miranda, Caracas, Venezuela for approximately $6.6 million. The Company funded the purchase price with its own funds and closed on the acquisition on June 2, 2011.

Description of line items

Net revenues

We recognize revenues in each of our five reporting segments. Our reporting segments include our operations in Brazil, Argentina, Mexico, Venezuela and other countries (Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Panama, Peru, Portugal and Uruguay).

We offer three types of up-front fees for three different combinations of placement and features. Up-front fees are charged at the time the listing is uploaded onto our platform and are not subject to successful sale of the items listed. Following this fee structure modification, revenues for the MercadoLibre Marketplace transacctions are now generated by:

	•		up front fees;

	•		final value fees; and

	•		online advertising fees.

Since the third quarter of 2010, we have offered payment processing through our MercadoPago solution at no added cost in Brazil and Argentina. On April 15, 2011, we launched a new and improved version of our MercadoPago payments platform that may be used for all our marketplace transactions in México. We also made offering MercadoPago obligatory in our Mexican marketplace listings (with the exception of free listings). This change in pricing implies that for Marketplace transactions we no longer charge our users a specific fee for processing on-platform payments as we did in the past. We do continue, however, to generate payment related revenues, reported within each of our reporting segments, attributable to:

	•		commissions charged to sellers for the use of the MercadoPago platform with respect to transactions that occur outside of our Marketplace platform;

	•		revenues from a financial charge when a buyer elects to pay in installments through our MercadoPago platform, for both transactions that occurs on or off our Marketplace platform.

The following table sets forth the percentage of consolidated net revenues by segment for the three-and six-month periods ended June 30, 2011 and 2010:


	Six-Month Periods Ended						Three-Month Periods Ended
	*June 30, ()**						*June 30, ()**
(% of total consolidated net revenues)	2011			2010			2011			2010

Brazil		57.1	%		58.0	%		57.6	%		58.6	%
Argentina		17.6			18.1			17.9			18.0
Venezuela		10.7			8.1			10.4			8.5
Mexico		8.1			9.3			7.7			8.9
Other Countries		6.6			6.5			6.4			6.0


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

The table above may not total due to rounding.

The following table summarizes the changes in net revenues for the three-and six-month periods ended June 30, 2011 and 2010:


	Six-Month Periods Ended				Change from 2010					Three-Month Periods Ended				Change from 2010
	June 30,				*to 2011()**					June 30,				*to 2011()**
	2011		2010		in Dollars		in %			2011		2010		in Dollars		in %
	(in millions, except percentages)											(in millions, except percentages)

Net Revenues:
Brazil	$	74.7	$	57.1	$	17.6		30.7	%	$	39.9	$	30.8	$	9.1		29.7	%
Argentina		23.0		17.8		5.2		29.0			12.4		9.5		2.9		31.1
Venezuela		14.0		7.9		6.1		76.3			7.2		4.5		2.7		61.9
Mexico		10.6		9.1		1.5		16.0			5.4		4.6		0.8		15.0
Other Countries		8.5		6.5		2.0		33.8			4.5		3.1		1.4		41.7

Total Net Revenues	$	130.8	$	98.4	$	32.4		32.9	%	$	69.4	$	52.5	$	16.9		32.1	%


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

		The table above may not total due to rounding.

We have a highly fragmented customer revenue base given the large numbers of sellers and buyers who use our platforms. For the three- and six-month periods ended June 30, 2011 and 2010, no single customer accounted for more than 1.0% of our net revenues. Our MercadoLibre Marketplace is available in thirteen countries (Argentina, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Mexico, Panama, Peru, Portugal, Uruguay and Venezuela), and MercadoPago is available in six countries (Argentina, Brazil, Chile, Colombia, Mexico and Venezuela). The functional currency for each country’s operations is the local currency, except for Venezuela whose functional currency is the U.S. dollar due to Venezuela’s status as a highly inflationary economy. See “Critical accounting policies and estimates — Foreign Currency Translation” included in this report. Therefore, our net revenues are generated in multiple foreign currencies and then translated into U.S. dollars at the average monthly exchange rate.

Our subsidiaries in Brazil, Argentina, Venezuela and Colombia are subject to certain taxes on revenues which are classified as a cost of net revenues. These taxes represented 7.6% and 7.5% of net revenues for the three- and six-month periods ended June 30, 2011.

Cost of net revenues

Cost of net revenues primarily represents bank and credit card processing charges for transactions and fees paid with credit cards and other payment methods, certain taxes on revenues, compensation for customer support personnel, ISP connectivity charges, depreciation and amortization and hosting and site operation fees.

Product and technology development expenses

Our product and technology development related expenses consist primarily of depreciation and amortization costs related to product and technology development, compensation for our engineering and web-development staff, telecommunications costs and payments to third-party suppliers who provide technology maintenance services to our company.

Sales and marketing expenses

Our sales and marketing expenses consist primarily of marketing costs for our platforms through online and offline advertising, bad debt charges, the salaries of employees involved in these activities, public relations costs, marketing activities for our users and depreciation and amortization costs.

We carry out the vast majority of our marketing efforts on the Internet. In that context, we enter in agreements with portals, search engines, social networks, ad networks and other sites in order to attract Internet users to the MercadoLibre Marketplace and convert them into confirmed registered users and active traders on our platform. Additionally, we allocate a portion of our marketing budget to cable television advertising in order to improve our brand awareness and to complement our online efforts.

We also work intensively on attracting, developing and growing our seller community through our supply efforts. We have dedicated professionals in most of our operations that work with sellers, through trade show participation, seminars and meetings to provide them with important tools and skills to become effective sellers on our platform.

General and administrative expenses

Our general and administrative expenses consist primarily of salaries for management and administrative staff, compensation for outside directors, long term retention plan compensation, expenses for legal, accounting and other professional services, insurance expenses, office space rental expenses, travel and business expenses, as well as depreciation and amortization costs. General and administrative expenses include the costs of the following areas of our company: general management, finance, administration, accounting, legal and human resources.

Other income (expenses)

Other income (expenses) consists of interest income derived primarily from our investments and cash equivalents, foreign currency gains or losses, and other non-operating results. Prior to the third quarter of 2010, other income (expenses) included mainly interest expense related to the working capital requirements for our MercadoPago operations. Since the third quarter of 2010 and for as long as we continue pre-selling credit card receivables there has been, and we expect in the future will be, no interest expense included in other income (expenses) line, related to MercadoPago’s working capital requirements.

Income and asset tax

We are subject to federal and state taxes in the United States, as well as foreign taxes in the multiple jurisdictions where we operate. Our tax obligations consist of current and deferred income taxes and asset taxes incurred in these jurisdictions. We account for income taxes following the liability method of accounting. Therefore, our income tax expense consists of taxes currently payable, if any (given that in certain jurisdictions we still have net operating loss carry-forwards), plus the change during the period in our deferred tax assets and liabilities.

Critical accounting policies and estimates

The preparation of our unaudited condensed consolidated financial statements and related notes requires us to make judgments, estimates and assumptions that affect our reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We have based our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our management has discussed the development, selection and disclosure of these estimates with our audit committee and board of directors. Actual results may differ from these estimates under different assumptions or conditions.

An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact our condensed consolidated financial statements. We believe that the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of our condensed consolidated financial statements. You should read the following descriptions of critical accounting policies, judgments and estimates in conjunction with our unaudited condensed consolidated financial statements, the notes there to and other disclosures included in this report.

Foreign Currency Translation

Historically, all of our foreign operations have used the local currency as 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 exchange losses or gains are included in the consolidated statements of income under the caption “Foreign currency (loss) / gain”.

Until September 30, 2009, our Venezuelan subsidiaries assets, liabilities, income and expenses were translated at the official exchange rate of 2.15 “Bolivares Fuertes” per U.S. dollar.

In the fourth quarter of 2009, we began to use the parallel exchange rate rather than the official exchange rate to translate our Venezuelan financial statements. The following facts and circumstances have been considered in our analysis of the applicable exchange rate:

	•		At the date we changed the translation exchange rate (and as of the date of this report), we have not obtained dividends remittances at the official exchange rate (and we have not at the date of this report),

	•		The industry in which we operate may not influence our ability to access to the official exchange rate,

	•		The Commission for the Administration of Foreign Exchange (“CADIVI”) volume of approvals of the use of the Official Rate was down 50% on a year-to-year basis as of July 2009.

	•		CADIVI has not only delayed approvals but also removed many items from priority lists (current priorities appear to be food and medicine), causing delays in the repatriation of dividends for many companies.

Consequently, in the fourth quarter of 2009, we translated our Venezuelan assets, liabilities, income and expense accounts using the parallel exchange rate.

As of the date of this report the Company did not buy dollars at the CADIVI official rate.

In accordance with U.S. GAAP, we have classified our Venezuelan operations as highly inflationary as of January 1, 2010 and have used the U.S. dollar to be the functional currency for purposes of our financial statements. Therefore, no translation effect was accounted for in other comprehensive income since October 1, 2009 related to our Venezuelan operations.

Until May 13, 2010, the only way by which U.S. dollars could be purchased outside the official currency market was using an indirect mechanism consisting in the purchase and sale of securities, including national public debt bonds (DPNs) denominated in Bolivares Fuertes and bonds issued by the government that were denominated in U.S. dollars. This mechanism for transactions in certain securities created an indirect “parallel” foreign currency exchange market in Venezuela that enabled entities to obtain foreign currency through financial brokers without going through CADIVI. Although the parallel exchange rate was higher, and accordingly less beneficial, than the official exchange rate, some entities have used the “parallel” market to exchange currency because, as already mentioned, CADIVI used not to approve in a timely manner the exchange of currency requested by such entities. Until May 13, 2010, our Venezuelan subsidiaries used this mechanism to buy U.S. dollars and accordingly we used the parallel average exchange rate to re-measure those foreign currency transactions.

Trading of foreign currencies was re-opened as a regulated market on June 9, 2010 with the Venezuelan Central Bank as the only institution through which foreign currency-denominated transactions can be brokered. Under the new system, known as the Foreign Currency Securities Transactions System (SITME), entities domiciled in Venezuela can buy U.S. dollar —denominated securities only through banks authorized by the BCV to import goods, services or capital inputs. Additionally, the SITME imposes volume restrictions on an entity’s trading activity, limiting such activity to a maximum equivalent of $50,000 per day, not to exceed $350,000 in a calendar month. This limitation is non-cumulative, meaning that an entity cannot carry over unused volume from one month to the next.

For the period beginning on May 14, 2010 and ended on June 8, 2010 (during which there was no open foreign currency markets), we applied U.S. GAAP guidelines, which state that if exchangeability between two currencies is temporarily lacking at the transaction date or balance sheet date, the first subsequent rate at which exchanges could be made shall be used.

Accordingly, the June 9, 2010 exchange rate published by the Venezuelan Central Bank has been used to re-measure transactions during the above-mentioned period.

During 2010 and previous years we were able to obtain U.S. dollars using alternative mechanisms other than the Venezuelan Commission of Foreign Exchange Administration (“CADIVI”). These dollars, obtained at a higher exchange rate than the one offered by CADIVI, and held in balance at U.S. bank accounts of our Venezuelan subsidiaries, were used for dividend distributions from our Venezuelan subsidiary. As a result, during 2010, lack of CADIVI approval did not restrict our ability to distribute the full amount of our retained earnings as dividends related to fiscal years 2008 ($0.8 million), and 2009 ($1.8 million). In addition, during 2011, our Venezuelan subsidiary distributed dividends of a $4.2 million, related to earnings for fiscal year 2010, using existing cash balances held in the U.S. bank accounts of our Venezuelan subsidiaries.

The following table sets forth the assets, liabilities and net assets of our Venezuelan subsidiaries, before intercompany eliminations, as of June 30, 2011 and December 31, 2010.


	June 30,			December 31,
	2011			2010

Venezuelan operations
Assets	$	21,299,401		$	21,928,340
Liabilities		(7,547,390	)		(8,212,581	)
Net Assets		13,752,011			13,715,759

Net assets of our Venezuelan subsidiary amount to approximately 7.0% of our consolidated net assets, and cash and investments of our Venezuelan subsidiary held in local currency in Venezuela amount to approximately 2.9% of our consolidated cash and investments.

On June 2, 2011, our Venezuelan subsidiary acquired an office property containing 992 square meters in a building located in Caracas, Venezuela for approximately $6.6 million. The Company funded the purchase price with its own funds.

Although, the current mechanisms available to obtain U.S. dollars for dividends distributions to our subsidiaries outside Venezuela imply increased restrictions, we do not expect that the current restrictions on purchasing U.S.dollars to have a significant adverse effect on its business plans with regard to our investment in Venezuela.

Impairment of long-lived assets and goodwill

We review long-lived assets for impairments whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired on this basis, the impairment loss to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Goodwill and certain indefinite life trademarks are reviewed at the end of the year for impairment or more frequently when events or changes in circumstances indicate that the carrying value may not be recoverable. Impairment of goodwill and certain trademarks are tested at the reporting unit level (considering each segment of the Company as a reporting unit) by comparing the reporting unit’s carrying amount, including goodwill and certain trademarks, to the fair value of the reporting unit. The fair values of the reporting units are estimated using a combination of the income or discounted cash flows approach and the market approach, which utilizes comparable companies’ data. If the carrying amount of the reporting unit exceeds its fair value, goodwill or indefinite useful life intangible assets are considered impaired and a second step is performed to measure the amount of impairment loss, if any. No impairments were recognized during the reporting periods and management’s assessment of each reporting unit’s fair value materially exceeds its carrying value.

We believe that the accounting estimate related to impairment of long lived assets and goodwill is critical since it is highly susceptible to change from period to period because: (i) it requires management to make assumptions about gross merchandise volume growth, future interest rates, sales and costs; and (ii) the impact that recognizing an impairment would have on the assets reported on our balance sheet as well as our net income would be material. Management’s assumptions about future sales and future costs require significant judgment.

Allowances for doubtful accounts and chargebacks

We are exposed to losses due to uncollectible accounts and credits to sellers. Allowances for these items represent our estimate of future losses based on our historical experience. The allowance for doubtful accounts and chargebacks is recorded as a charge to sales and marketing expenses. Historically, our actual losses have been consistent with our charges. However, future changes in trends could have a material impact on our future consolidated statements of income and cash flows.

We believe that the accounting estimate related to allowances for doubtful accounts and chargebacks is a critical accounting estimate because it requires management to make assumptions about future collections and credit analysis. Our management’s assumptions about future collections require significant judgment.

Legal contingencies

In connection with certain pending litigation and other claims, we have estimated the range of probable loss and provided for such losses through charges to our condensed consolidated statement of income. These estimates are based on our assessment of the facts and circumstances and historical information related to actions filed against the Company at each balance sheet date and are subject to change based upon new information and future events.

From time to time, we are involved in disputes that arise in the ordinary course of business. We are currently involved in certain legal proceedings as described in “Legal Proceedings” in Item 1 of Part II of this report, Item 3 of Part I of our annual report on Form 10-K for our most recently completed fiscal year filed with the Securities and Exchange Commission, and in Note 8 to our unaudited interim condensed consolidated financial statements. We believe that we have meritorious defenses to the claims against us, and we will defend ourselves accordingly. However, even if successful, our defense could be costly and could divert management’s time. If the plaintiffs were to prevail on certain claims, we might be forced to pay damages or modify our business practices. Any of these consequences could materially harm our business and could have a material adverse impact on our financial position, results of operations or cash flows.

Income taxes

We are required to recognize a provision for income taxes based upon taxable income and temporary differences between the book and tax bases of our assets and liabilities for each of the tax jurisdictions in which we operate. This process requires a calculation of taxes payable under currently enacted tax laws in each jurisdiction and an analysis of temporary differences between the book and tax bases of our assets and liabilities, including various accruals, allowances, depreciation and amortization. The tax effect of these temporary differences and the estimated tax benefit from our tax net operating losses are reported as deferred tax assets and liabilities in our condensed consolidated balance sheet. We also assess the likelihood that our net deferred tax assets will be realized from future taxable income. To the extent we believe that it is more likely than not that some portion or all of deferred tax asset will not be realized, we establish a valuation allowance. At June 30, 2011, we had a valuation allowance on certain foreign net operating losses based on our assessment that it is more likely than not that the deferred tax asset will not be realized. To the extent we establish a valuation allowance or change the allowance in a period, we reflect the change with a corresponding increase or decrease in our “Income/asset tax expense” line in our condensed consolidated statement of income.

Results of operations for the three-month period ended June 30, 2011 compared to three-month period ended June 30, 2010 and the six-month period ended June 30, 2011 compared to the six-month period ended June 30, 2010

The selected financial data for the three- and six-month periods ended June 30, 2011 and 2010 have been derived from our unaudited condensed consolidated financial statements included in Item 1 of Part I of this report. These statements include all normal recurring adjustments that management believes are necessary to fairly state our financial position, results of operations and cash flows. Results of operations for the three- and six-month periods ended June 30, 2011 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2011 or for any other period.

Statement of income data


	Six Months Ended June 30,						Three Months Ended June 30,
(In millions)	*2011 ()**			*2010 ()**			*2011 ()**			*2010 ()**
	(Unaudited)						(Unaudited)
Net revenues	$	130.8		$	98.4		$	69.4		$	52.5
Cost of net revenues		(31.3	)		(21.3	)		(16.9	)		(11.4	)

Gross profit		99.6			77.1			52.4			41.1

Operating expenses:
Product and technology development		(10.7	)		(7.2	)		(5.5	)		(4.0	)
Sales and marketing		(28.9	)		(22.6	)		(15.6	)		(11.5	)
General and administrative		(19.2	)		(13.0	)		(9.7	)		(6.8	)

Total operating expenses		(58.7	)		(42.8	)		(30.9	)		(22.3	)

Income from operations		40.8			34.3			21.6			18.8


Other income (expenses):
Interest income and other financial gains		4.1			1.7			2.2			0.9
Interest expense and other financial charges		(1.5	)		(6.4	)		(0.9	)		(3.4	)
Foreign currency gains / losses		(1.2	)		0.4			(0.7	)		—
Other income, net		0.3			—			0.2			—

Net income before income / asset tax expense		42.5			30.0			22.5			16.3


Income / asset tax expense		(13.6	)		(8.7	)		(7.6	)		(4.7	)

Net income	$	28.9		$	21.3		$	14.8		$	11.7


(*)		Totals may not add due to rounding

Other Data


	Six Months Ended June 30,				Three Months Ended June 30,
(In millions)	2011		2010		2011		2010

Number of confirmed registered users at end of the period ¹		58.4		47.4		58.4		47.4
Number of confirmed new registered users during the period ²		5.5		4.9		2.8		2.5
Gross merchandise volume ³		2,021.8		1,529.7		1,067.8		798.1
Number of items sold ⁴		22.5		17.6		11.6		9.2
Total payment volume ⁵		541.1		271.6		295.8		147.8
Total payment transactions ⁶		5.7		2.3		3.1		1.3
Capital expenditures		13.4		3.9		10.4		2.5
Depreciation and amortization		3.3		2.2		1.8		1.2


1		- Measure of the cumulative number of users who have registered on the MercadoLibre Marketplace and confirmed their registration.

2		- Measure of the number of new users who have registered on the MercadoLibre Marketplace and confirmed their registration.

3		- Measure of the total U.S. dollar sum of all transactions completed through the MercadoLibre Marketplace, excluding motor vehicles, vessels, aircraft and real estate.

4		- Measure of the number of items that were sold/purchased through the MercadoLibre Marketplace.

5		- Measure of the total U.S. dollar sum of all transactions paid for using MercadoPago.

6		- Measure of the number of all transactions paid for using MercadoPago.

Net revenues


	Six-Month Periods Ended						Change from 2010 to					Three-Month Periods Ended						Change from 2010 to
	June 30,						*2011 ()**					June 30,						*2011 ()**
	2011			2010			in Dollars		in %			2011			2010			in Dollars		in %
	(in millions, except percentages)											(in millions, except percentages)

Total Net Revenues	$	130.8		$	98.4		$	32.4		32.9	%	$	69.4		$	52.5		$	16.9		32.1	%

As a percentage of net revenues (*)		100.0	%		100.0	%							100.0	%		100.0	%


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

The 32.1% growth in net revenues from the second quarter of 2010 to the second quarter of 2011 resulted principally from a 33.8% increase in the gross merchandise volume (“GMV”) transacted through our platform from the second quarter of 2010 to the second quarter of 2011. This GMV growth resulted from a 26.3% increase in items sold between those periods and a positive impact on U.S. dollars figures mainly due to the appreciation of the Brazilian Real and also since the parallel exchange rate used by our Venezuelan subsidiary in the first quarter of 2010 was 6.04 Bolivares Fuertes per U.S. dollar as compared to 5.3 Bolivares Fuertes per U.S. dollar for the second quarter of 2011. See “Critical accounting policies and estimates — Foreign currency translation” for more detail.

The 32.9% growth in net revenues from the first half of 2010 to the first half of 2011 resulted principally from a 32.2% increase in the gross merchandise volume (“GMV”) transacted through our platform from the first half of 2010 to the first half of 2011. This GMV growth resulted from a 28.4% increase in items sold between those periods and a positive impact on U.S. dollars figures mainly due to the appreciation of the Brazilian Real and also since the parallel exchange rate used by our Venezuelan subsidiary in the first half of 2010 was 6.28 Bolivares Fuertes per U.S. dollar as compared to 5.3 Bolivares Fuertes per U.S. dollar for the first half of 2011. See “Critical accounting policies and estimates — Foreign currency translation” for more detail.

For the three- and six-month periods ended June 30, 2011, net revenues also include the net amount collected from financial institutions as a result of pre-selling installment-related financing receivables. We entered into these pre-selling agreements with the aim of substantially eliminating credit risk and optimizing financial cost. For the three- and six-month period ended June 30, 2011, our net revenues have no financial related expenses. For the three- and six-month periods ended June 30, 2010, as we had assumed the financial risk of installment-related financing receivables, our MercadoPago financing revenues had an associated $3.9 million and $7.3 million of financial expenses, respectively.

Measured in local currencies, net revenues grew 21.6% and 23.5% during the three- and six-month periods ended June 30, 2011, respectively, compared to the same period a year earlier. The local currency revenue growth was calculated by using the average monthly exchange rates for each month during 2010 and applying them to the corresponding months in 2011, so as to calculate what our financial results would have been had exchange rates remained stable from one year to the next.

For the three-month period ended June 30, 2011 as compared to the same period in 2010, net revenues decreased slightly due to a reduction in our take rate, which we define as net revenues as a percentage of gross merchandise volume, from 6.6% for the three-month period ended June 30, 2010 to 6.5% for the three-month period ended June 30, 2011. For the six-month period ended June 30, 2011 as compared to the same period in 2010, net revenues increased slightly due to growth in our take rate, from 6.4% for the six-month period ended June 30, 2010 to 6.5% for the six-month period ended June 30, 2011.

The following table summarizes the changes in net revenues by each reporting segment for the three— and six-month periods ended June 30, 2011 and 2010:


	Six-Month Periods Ended				Change from 2010					Three-Month Periods Ended				Change from 2010
	June 30,				*to 2011 ()**					June 30,				*to 2011 ()**
	2011		2010		in Dollars		in %			2011		2010		in Dollars		in %
	(in millions, except percentages)									(in millions, except percentages)

Net Revenues:
Brazil	$	74.7	$	57.1	$	17.6		30.7	%	$	39.9	$	30.8	$	9.1		29.7	%
Argentina		23.0		17.8		5.2		29.0			12.4		9.5		2.9		31.1
Venezuela		14.0		7.9		6.1		76.3			7.2		4.5		2.7		61.9
Mexico		10.6		9.1		1.5		16.0			5.4		4.6		0.8		15.0
Other Countries		8.5		6.5		2.0		33.8			4.5		3.1		1.4		41.7

Total Net Revenues	$	130.8	$	98.4	$	32.4		32.9	%	$	69.4	$	52.5	$	16.9		32.1	%


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

		The table above may not total due to rounding.

On a segment basis, our net revenues for the three- and six-month periods ended June 30, 2011 as compared to the same periods in 2010, increased across all segments.

The following table sets forth our total net revenues and the sequential quarterly growth of these net revenues for the periods described below:


	Quarter Ended
	March 31,			June 30,			September 30,			December 31,
	(in millions, except percentages)
	*()**
2011
Net Revenues	$	61.5		$	69.4			n/a			n/a
Percent change from prior quarter		-1	%		13	%
2010
Net Revenues	$	45.9		$	52.5		$	56.0		$	62.3
Percent change from prior quarter		-6	%		14	%		7	%		11	%
2009
Net Revenues	$	32.3		$	40.9		$	50.6		$	49.0
Percent change from prior quarter		-3	%		27	%		24	%		-3	%
2008
Net Revenues	$	28.8		$	34.5		$	40.3		$	33.4
Percent change from prior quarter		7	%		20	%		17	%		-17	%


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

Cost of net revenues


	Six-Month Periods Ended						Change from 2010 to					Three-Month Periods Ended						Change from 2010 to
	June 30,						*2011 ()**					June 30,						*2011 ()**
	2011			2010			in Dollars		in %			2011			2010			in Dollars		in %
	(in millions, except percentages)											(in millions, except percentages)

Total cost of net revenues	$	31.3		$	21.3		$	10.0		46.8	%	$	16.9		$	11.4		$	5.5		48.4	%

As a percentage of net revenues (*)		23.9	%		21.6	%							24.4	%		21.7	%


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

For the three- and six-month periods ended June 30, 2011, the increase in cost of net revenues as compared to the same periods of 2010 was primarily attributable to a $1.9 million and $3.4 million increase in collection fees, respectively. The increase in collection fees, which occurred primarily in Brazil and Argentina, was a result of the higher penetration of our Payment solution into our Marketplace, which has a higher collection fee cost. In addition, sales taxes on our net revenues increased by $1.7 million, or 46.2% and $3.1 million or 47.2%, respectively, for the three- and six-month periods ended June 30, 2011, compared to the same periods of 2010 mainly as a consequence of increases in net revenues. Moreover, during the three- and six-month periods ended June 30, 2011 as compared to the same periods in the prior year, expenditures related to our in-house customer support operations increased by $1.4 million and $2.4 million, respectively, primarily driven by an increase in compensation costs and recruitment. The increased compensation costs and recruitment are incurred in order to improve our service and our initiatives to combat fraud, illegal items and fee evasion. Finally, for the three- and six-month periods ended June 30, 2011, as compared to the same period of the previous year, bank transfer fees related to MercadoPago, mainly in Brazil, increased by $0.3 million and $0.4 million, respectively.

Product and technology development


	Six-Month Periods Ended						Change from 2010 to					Three-Month Periods Ended						Change from 2010 to
	June 30,						*2011 ()**					June 30,						*2011 ()**
	2011			2010			in Dollars		in %			2011			2010			in Dollars		in %
	(in millions, except percentages)											(in millions, except percentages)

Product and technology development	$	10.7		$	7.2		$	3.5		48.2	%	$	5.5		$	4.0		$	1.5		38.8	%

As a percentage of net revenues (*)		8.2	%		7.3	%							8.0	%		7.6	%


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

For the three- and six-month periods ended June 30, 2011, the growth in product and technology development expenses as compared to the same periods in 2010 was primarily attributable to an increase of $0.8 million or a 39.2% and $1.7 million or a 49.0%, respectively, increase in compensation costs. These additional compensation expenses were primarily related to the addition of engineers and, to a lesser extent, to increases in compensation costs, as we continue to invest in top quality talent to develop enhancements and new features across our platforms. We believe product development is one of our key competitive advantages and intend to continue to invest in adding engineers to meet the increasingly sophisticated product expectations of our customer base.

Product and technology development expenses also grew during the three- and six-month periods ended June 30, 2011 as a consequence of increased depreciation and amortization expenses related to product and technology development of $0.3 million, or 39.2% and $0.7 million or 48.8%, respectively, compared to the same periods in 2010 and increased maintenance expenses of $0.3 million and $0.6 million compared to the same periods in 2010.

Sales and marketing


	Six-Month Periods Ended						Change from 2010 to					Three-Month Periods Ended						Change from 2010 to
	June 30,						*2011 ()**					June 30,						*2011 ()**
	2011			2010			in Dollars		in %			2011			2010			in Dollars		in %
	(in millions, except percentages)											(in millions, except percentages)

Sales and marketing	$	28.9		$	22.6		$	6.3		27.8	%	$	15.6		$	11.5		$	4.2		36.3	%

As a percentage of net revenues (*)		22.1	%		22.9	%							22.5	%		21.8	%


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

For the three-month period ended June 30, 2011, the increase in sales and marketing expenses when compared to the same period in 2010 was primarily attributable to a one-time negative impact related to certain voided or overdrawn checks that were processed by one of MercadoPago’s payments processors in Brazil, which resulted in a loss of $1.6 million. Other marketing expenses increased by $0.9 million in the three-month period ended June 30, 2011 as compared to the same period of the previous year due to chargebacks related to MercadoPago mainly in Brazil. In addition, a $0.6 million increase in compensation costs driven by higher salaries to retain talent, and a $0.5 million increase in bad debt charges in the 2011 period also contributed to the increase in sales and marketing expenses during the period. Bad debt charges for the three-month period ended June 30, 2011 represented 6.1% of net revenues versus 7.1% for the same period in 2010. Finally, sales and marketing expenses related to trust and safety expenses increased by $0.5 million in the second quarter of 2011 when compared to the same period in 2010, due to the increased use of our buyer protection program developed to compensate buyers for unfulfilled transactions or other claims related to the quality of the purchased goods.

For the six-month period ended June 30, 2011, the increase in sales and marketing expenses when compared to the same period in 2010 was primarily attributable to a one-time negative impact related to one Brazilian MercadoPago payments processor discussed above, which resulted in a loss of $1.6 million. Other marketing expenses increased by $1.3 million in the six-month period ended June 30, 2011 as compared to the same period of the previous year due to chargebacks related to MercadoPago mainly in Brazil. In addition, a $1.4 million increase in compensation costs driven by higher salaries to retain talent, and a $1.2 million increase in bad debt charges in the 2011 period also contributed to the increase in sales and marketing expenses during the period. Bad debt charges for the six-month period ended June 30, 2011 represented 6.3% of net revenues versus 7.2% for the same period in 2010. Finally, sales and marketing expenses related to trust and safety expenses increased by $1.0 million in the first half of 2011 when compared to the same period in 2010, due to the increased use of our buyer protection program developed to compensate buyers for unfulfilled transactions or other claims related to the quality of the purchased goods. The increase in sales and marketing expenses for the six-month period ended June 30, 2011 was partially offset by a $0.5 million decrease in our online advertising expenses related to our affiliate program and specific deals, as we have optimized investment allocation over the same period ended June 30, 2010. Online advertising represented 5.7% and 6.0% of our net revenues in the three- and six-month periods ended June 30, 2011, respectively, down from 7.6% and 8.4% for the same periods in 2010, respectively.

General and administrative


	Six-Month Periods Ended						Change from 2010 to					Three-Month Periods Ended						Change from 2010 to
	June 30,						*2011 ()**					June 30,						*2011 ()**
	2011			2010			in Dollars		in %			2011			2010			in Dollars		in %
	(in millions, except percentages)											(in millions, except percentages)

General and administrative	$	19.2		$	13.0		$	6.2		47.1	%	$	9.7		$	6.8		$	2.9		42.4	%

As a percentage of net revenues (*)		14.7	%		13.2	%							14.0	%		13.0	%


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

For the three- month period ended June 30, 2011, the increase in general and administrative expenses as compared to the same period of 2010, was primarily attributable to a $1.3 million increase in compensation costs in the 2011 period related to our long term retention plans and increases in salaries to retain talent, a $1.0 million increase in outside services mainly related to legal and tax fees, a $0.3 million increase in office expenses mainly related to new offices in our main locations and a $0.2 million increase related to other general and administrative expenses.

For the six-month period ended June 30, 2011, the increase in general and administrative expenses as compared to the same period of 2010, was primarily attributable to a $3.1 million, increase in compensation costs in the 2011 period related to our long term retention plans and increases in salaries to retain talent, a $1.6 million increase in outside services mainly related to legal and tax fees, a $0.7 million increase in office expenses mainly related to new offices in our main locations and a $0.5 million increase related to other general and administrative expenses.

Other income (expenses)


	Six-Month Periods Ended						Change from 2010 to					Three-Month Periods Ended						Change from 2010 to
	June 30,						*2011 ()**					June 30,						*2011 ()**
	2011			2010			in Dollars		in %			2011			2010			in Dollars		in %
	(in millions, except percentages)											(in millions, except percentages)

Other income (expenses)	$	1.7		$	(4.3	)	$	6.0		-139.1	%	$	0.9		$	(2.5	)	$	3.4		-136.6	%

As a percentage of net revenues		1.3	%		-4.3	%							1.3	%		-4.7	%


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

For the three-month period ended June 30, 2011 as compared to the same period in 2010, the decrease in other expenses was primarily a result of: (a) a $2.5 million decrease in financial expenses resulting from our determination to pre-sell installment-related financing receivables, which we commenced in the third quarter of 2010; and (b) a $1.3 million increase in interest income and other financial charges related to higher interest income earned on our investments driven by a greater volume of investments and higher interest rates, particularly in Brazil.

The increase in other income (expenses) was partially offset by an increase of $0.7 million in foreign currency losses. The increase in foreign currency losses for the three-month period ended June 30, 2011 was primarily due to losses in Brazil attributable to the impact of the local currency appreciation on the cash balances held by our Brazilian subsidiaries in U.S. dollars during the second quarter of 2011 versus a lesser impact in the second quarter of 2010.

For the six-month period ended June 30, 2011 as compared to the same period in 2010, the decrease in other expenses was primarily a result of: (a) a $4.8 million decrease in financial expenses resulting from our determination to pre-sell installment-related financing receivables, which we commenced in the third quarter of 2010; and (b) a $2.4 million increase in interest income and other financial charges related to higher interest income earned on our investments driven by a greater volume of investments and higher interest rates, particularly in Brazil.

The increase in other income (expenses) was partially offset by an increase of $1.6 million in foreign currency losses from $0.4 million of foreign currency gains in the first half of 2010 to a $1.2 million of foreign currency losses in the first half of 2011. The increase in foreign currency losses for the six-month period ended June 30, 2011 was primarily due to losses in Brazil and Mexico attributable to the impact of the local currency appreciation on the cash balances held by our Brazilian and Mexican subsidiaries in U.S. dollars during the first half of 2011 versus a devaluation of those local currencies in the first half of 2010.

Income and asset tax


	Six-Month Periods Ended						Change from 2010 to					Three-Month Periods Ended						Change from 2010 to
	June 30,						*2011 ()**					June 30,						*2011 ()**
	2011			2010			in Dollars		in %			2011			2010			in Dollars		in %
	(in millions, except percentages)											(in millions, except percentages)

Income and asset tax	$	13.6		$	8.7		$	4.9		55.9	%	$	7.6		$	4.7		$	2.9		63.7	%

As a percentage of net revenues (*)		10.4	%		8.9	%							11.0	%		8.9	%


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

During the three- and six-month periods ended June 30, 2011 as compared to the same periods the previous year, income and asset tax increased $2.9 million and $4.9 million, respectively, as a consequence of higher taxable income period over period. In addition, our income and asset tax expense margin was negatively impacted by increases in income tax charge in Brazil as a consequence of permanent tax differences period over period.

Our blended tax rate is defined as income and asset tax expense as a percentage of income before income and asset tax. Our effective income tax rate is defined as the provision for income taxes (net of charges related to dividend distribution from foreign subsidiaries which are offset with domestic foreign tax credits) as a percentage of pre-tax income. The effective income tax rate excludes the effects of the deferred income tax, and the Mexican tax called “Impuesto Empresarial a Tasa Única” (“IETU”).

The following table summarizes the changes in our blended and effective tax rate for the three- and six-month periods ended June 30, 2011 and 2010:


	Six-Month Periods Ended						Three-Month Periods Ended
	June 30,						June 30,
	2011			2010			2011			2010

Blended tax rate		32.1	%		29.1	%		34.0	%		28.6	%
Effective tax rate		28.4	%		33.4	%		28.6	%		35.8	%


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

Our blended tax rate increase from the three- and six-month periods ended June 30, 2010 to the same periods in 2011 due to a growth in our Venezuelan taxable income where the income tax rate is 34% as compared to other locations where we have lower tax rates. In addition, for the three- and six-month periods ended June 30, 2011, our Argentine taxable income has a lower share of the consolidated taxable income when compared to the same periods in 2010, which results in a higher consolidated tax rate as a consequence that Argentina has a lower tax rate compared to other locations. Our blended tax rate also grew as a consequence of certain Brazilian non-deductible losses related to voided and/or overdrawn checks processed by a MercadoPago payments processor as described in our Sales and Marketing discussion.

Our effective tax rate decreased from the three- and six-month periods ended June 30, 2010 to the same periods in 2011 due to our Brazilian business reorganization generated as part of our tax planning strategy, which permitted us to use tax loss carryforwards in that country and due to a decrease in the Argentine effective tax rate as described below.

The following table sets forth our effective income tax rate related to our main locations for the three- and six-month periods ended June 30, 2011 and 2010:


	Six-Month Periods Ended						Three-Month Periods Ended
	June 30,						June 30,
	2011			2010			2011			2010

Effective tax rate by country

Argentina		16.4	%		19.6	%		14.9	%		22.9	%
Brazil		31.5	%		37.2	%		30.8	%		38.4	%
Mexico		23.7	%		24.6	%		27.2	%		38.7	%
Venezuela		34.4	%		32.7	%		38.4	%		18.9	%

The Company’s Argentine subsidiary is a beneficiary of a software development law granting it a relief of 60% of total income tax determined in each year. Mainly for that reason, our Argentine operation’s effective income tax rate for the three- and six-month periods ended June 30, 2011 and 2010 are currently lower than the local statutory rate of 35%. If we had not been granted the Argentine tax holiday, our Argentine effective income tax rate would have been higher but, in that case, we would have pursued an alternative tax planning strategy.

The decrease in our Argentine operation’s effective income tax rate period over period is mainly related to variations in temporary tax differences.

For the three- and six-month periods ended June 30, 2011, our Brazilian effective income tax rates are lower than the local statutory rate of 34% mainly because of the business reorganization generated as part of our tax planning strategy, which permitted us to use tax loss carryforwards in that country. For the three- and six-month periods ended June 30, 2010, our Brazilian effective income tax rates are higher than the local statutory rate as a consequence of variations in both temporary and permanent tax differences.

For the three- and six-month periods ended June 30, 2011, our Mexican effective income tax rates are lower than the local statutory rate of 30% mainly because of variations in permanent tax differences. For the six-month period ended June 30, 2010, our Mexican effective income tax rate is lower than the local statutory rate mainly because of a business reorganization generated as part of our tax planning strategy, which permitted us to use tax loss carryforwards in that country (all tax loss carryforwards were used in 2010) and due to variations in permanent tax differences. For the three-month period ended June 30, 2010, our Mexican effective income tax rate is higher than the local statutory rate mainly as a consequence of temporary and permanent tax differences.

For the three- and six-month periods ended June 30, 2011, our Venezuelan effective income tax rates are higher than the local statutory rate mainly due to losses related to temporary differences generated by the re-measurement of our foreign-currency position computed for tax purposes that cannot be considered for U.S. GAAP purposes (our Venezuelan subsidiaries functional currency is the U.S. dollar due to a highly inflationary environment). For the three- and six-month periods ended June 30, 2010, our Venezuelan effective income tax rates are lower than the local statutory rate of 34%, mainly as a consequence of a loss related to the local inflation adjustment that is not recorded for U.S. GAAP purposes.

Our effective tax rate reflects the tax effect of significant operations outside the United States, which are generally taxed at rates lower than the U.S. statutory rate of 35%, especially in the case of Argentina, where we have significant operations with a low effective tax as a consequence of an Argentine tax holiday. A future change in the mix of pretax income from these various tax jurisdictions would impact the Company’s periodic effective tax rate.

We do not expect to have a significant impact in the domestic effective income tax rate related to dividend distributions from foreign subsidiaries since our strategy is to reinvest our cash surplus in our international operations, and to distribute dividends when they can be offset with available tax credits.

Liquidity and Capital Resources

Our main cash requirement historically has been working capital to fund MercadoPago financing operations in Brazil. We also require cash for capital expenditures relating to technology infrastructure, software applications, office space and to fund the payment of quarterly cash dividends on shares of our common stock.

Since our inception, we have funded our operations primarily through contributions received from our stockholders during the first two years of operations, from funds raised during our initial public offering, and from cash generated from our operations. We have funded MercadoPago by discounting credit card receivables, with loans backed with credit card receivables and through cash advances derived from our business.

At June 30, 2011, our principal source of liquidity was $116.6 million of cash and cash equivalents and short-term investments and $50.2 million of long-term investments provided by cash generated from operations. We consider our long-term investments as part of our liquidity because long-term investments are comprised by available-for-sale securities classified as long-term as a consequence of their contractual maturities.

The significant components of our working capital are cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued expenses, funds receivable from and payable to MercadoPago users, and short-term debt. As long as we continue transferring credit card receivables to financial institutions in return for cash, we will continue generating cash.

As of June 30, 2011, cash and investments of foreign subsidiaries amount to $137.5 million or 82.4% of our consolidated cash and investments and approximately 51.1% of consolidated cash and investments are held outside the U.S., mostly in Brazil. Our strategy is to reinvest our undistributed earnings of our foreign operations in those operations and to distribute dividends when they can be offset with available tax credits. We do not expect a material impact in any repatriation of undistributed earnings of foreign subsidiaries on our operations since the taxable domestic gains generated by any dividend distributions will be mostly offset with foreign tax credits that arise from income tax paid in our foreign operations, which we are allowed to compute for domestic income tax purposes.

In the event we change the way we manage our business, the working capital needs could be funded, as we did in the past, through a combination of the sale of credit card coupons to financial institutions, loans backed by credit card receivables and cash advances from our business.

The following table presents our cash flows from operating activities, investing activities and financing activities for the six-month periods ended June 30, 2011 and 2010:


	Six Months Ended June, 30
(In millions)	2011			2010
	(in millions)
Net cash provided by (used in):

Operating activities	$	33.7		$	26.1
Investment activities		(43.3	)		(41.3	)
Financing activities		(3.5	)		(3.0	)
Effect of exchange rate changes on cash and cash equivalents		0.5			—

Net decrease in cash and cash equivalents	$	(12.6	)	$	(18.2	)

Net cash provided by operating activities

Cash provided by operating activities consists of net income adjusted for certain non-cash items, and the effect of changes in working capital and other activities.


	Six-Month Periods Ended				Change from 2010 to
	June 30,				*2011 ()**
	2011		2010		in Dollars		in %
	(in millions, except percentages)

Net Cash provided by:

Operating activities	$	33.7	$	26.1	$	7.6		29.3	%


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

The $7.6 million increase in net cash provided by operating activities during the six-month period ended June 30, 2011 compared to the same period in 2010 was mainly attributable to a $7.6 million increase in net income. Additionally, net cash provided by operating activities was impacted by a $4.4 million decrease in changes in account receivables in the six-month period ended June 30, 2011 versus the same period of 2010, a $4.5 million increase in non-cash losses primarily attributable to long term retention plan compensation expenses, depreciation and amortization and deferred taxes, and a $2.2 million increase in other liabilities.

These increases in cash provided by operations were partially offset by a $11.0 million decrease in changes in account payable.

Net cash used in investing activities


	Six-Month Periods Ended						Change from 2010 to
	June 30,						*2011 ()**
	2011			2010			in Dollars			in %
	(in millions, except percentages)

Net Cash used in:

Investing activities	$	(43.3	)	$	(41.3	)	$	(2.0	)		4.7	%


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

Net cash used in investing activities in the six-month period ended June 30, 2011 resulted mainly from purchases of investments for $201.0 million. During the six-month period ended June 30, 2011, the increase in cash used in investment activities was partially offset by proceeds from the sale and maturity of $171.1 million of investments as part of our financial strategy. Additionally, we used $13.4 million of cash in the six-month period ended June 30, 2011 to make capital expenditures related to (a) the purchase of a new office in Venezuela for approximately $6.6 million and (b) technological equipment, software licenses, new office space in Argentina and office equipment in Brazil, Colombia and Mexico.

As of June 30, 2010, net cash used in investing activities resulted primarily from purchases of investments for $64.3 million. Additionally, in the six-month period ended June 30, 2010, we used $3.9 million of cash for capital expenditures related to technological equipment, software licenses and, to a lesser degree, office equipment. During the six-month period ended June 30, 2010, the increase in cash used in investment activities was partially offset by proceeds from the sale and maturity of $26.9 million of investments as part of our financial strategy.

Net cash used in financing activities


	Six-Month Periods Ended						Change from 2010 to
	June 30,						*2011 ()**
	2011			2010			in Dollars			in %
	(in millions, except percentages)

Net Cash used in:

Financing activities	$	(3.5	)	$	(3.0	)	$	(0.5	)		17.8	%


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

For the six-month period ended June 30, 2011, our primary use of cash was to fund the $3.5 million quarterly cash dividends paid on April 15, 2011. For the six-month period ended June 30, 2010, our primary use of cash for financing activities was a reduction in short term debt as we paid $3.0 million of notes outstanding which were issued in connection with the DeRemate acquisition.

In the event that we decide to pursue strategic acquisitions in the future, we may fund them with available cash, third party debt financing, or by raising equity capital, as market conditions allow.

Debt

As of June 30, 2011, the Company recorded $3.5 million of dividends payable to its stockholders. In addition, as of June 30, 2011, our outstanding debt of $0.2 million is related to an Argentine car lease contract. See “Contractual obligations” below for more information.

Cash Dividends

In June 2011, our board of directors declared our second quarterly cash dividend in our history of $3.5 million on our outstanding shares of common stock. The dividend was paid on July 15, 2011 to stockholders of record as of the close of business on June 30, 2011. We currently expect to continue paying comparable cash dividends on a quarterly basis. However, any future determination as to the declaration of dividends on our common stock will be made at the discretion of our board of directors.

Capital expenditures

Our capital expenditures increased by $9.5 million to $13.4 million for the six-month period ended June 30, 2011 as compared to $3.9 million for the same period in 2010, mainly due to the acquisition of a new office property located in Caracas, Venezuela for approximately $6.6 million, and due to information technology investments made during the six-month period ended June 30, 2011. The Company increased the level of investment on hardware and software licenses necessary to improve and update the technology of our platform, cost of computer software developed internally and office equipment for new office space in Argentina, Brazil and Mexico. We anticipate continued investments in capital expenditures related to information technology in the future as we strive to maintain our position in the Latin American e-commerce market.

We believe that our existing cash and cash equivalents, including the sale of credit card receivables and cash generated from operations will be sufficient to fund our operating activities, property and equipment expenditures and to pay or repay obligations going forward.

Off-balance sheet arrangements

At June 30, 2011, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.

Recent Accounting Pronouncements

Presentation of Comprehensive Income

Fair value measurement and disclosure

Contractual obligations

We have certain fixed contractual obligations and commitments that include future estimated Payments. Changes in our business needs, cancellation provisions and other factors may result in actual Payments differing materially from the estimates. We cannot provide certainty regarding the timing and amount of Payments. Below is a summary of the most significant assumptions used in our determination of amounts presented in the table. Contractual obligations at June 30, 2011 are as follows:


			Payment due by period
			Less than		1 to 3		3 to 5		More tan
(in millions)	Total		1 year		years		years		5 years
Capital lease obligations (1)	$	0.2	$	0.1	$	0.1	$	—	$	—
Operating lease obligations (2)		4.2		1.0		2.3		0.8		0.1
Purchase obligations		5.5		4.4		1.1		—		—


Total	$	9.9	$	5.5	$	3.5	$	0.8	$	0.1


(1)		On February 22, 2010, our Argentina subsidiary signed a Company car lease contract to buy 12 cars for certain employees of the Company. The total lease contract amounted to $0.4 million and matures in July 2013.

(2)		Includes leases of office space.

We have leases for office space in certain countries in which we operate and leases for Company cars in Argentina. These are our only operating leases. Purchase obligation amounts include minimum purchase commitments for advertising, capital expenditures (technological equipment and software licenses) and other goods and services that were entered into in the ordinary course of business. We have developed estimates to project payment obligations based upon historical trends, when available, and our anticipated future obligations. Given the significance of performance requirements within our advertising and other arrangements, actual Payments could differ significantly from these estimates.


Item 3		— Qualitative and Quantitative Disclosure About Market Risk

We are exposed to market risks arising from our business operations. These market risks arise mainly from the possibility that changes in interest rates and the U.S. dollar exchange rate with local currencies, particularly the Brazilian Real due to Brazil’s share of our revenues, may affect the value of our financial assets and liabilities.

Foreign currencies

At June 30, 2011, we hold cash and cash equivalents in local currencies in our subsidiaries, and have receivables denominated in local currencies in all of our operations. Our subsidiaries generate revenues and incur most of their expenses in local currency. As a result, our subsidiaries use their local currency as their functional currency, except for our Venezuelan subsidiaries whose functional currency is the U.S. dollar due to a highly inflationary environment. At June 30, 2011, the total cash and cash equivalents denominated in foreign currencies totaled $14.4 million, short-term investments denominated in foreign currencies totaled $70.8 million and accounts receivable and funds receivable from customers in foreign currencies totaled $22.7 million. As of June 30, 2011, we have no long-term investments denominated in foreign currencies. To manage exchange rate risk, our treasury policy is to transfer most cash and cash equivalents in excess of working capital requirements into dollar-denominated accounts in the United States. At June 30, 2011, our dollar-denominated cash and cash equivalents and short-term investments totaled $31.4 million and our dollar-denominated long-term investments totaled $50.2 million. For the three- and six-month periods ended June 30, 2011, we incurred foreign currency losses in the amount of $0.7 million and $1.2 million, respectively, as the cash and investment balances of the subsidiaries held in U.S. dollars depreciated in local current terms. (See “Management Discussion and Analysis of Financial Condition and Results of Operations — Results of operations for the three-month period ended June 30, 2011 compared to three-month period ended June 30, 2010 and the six-month period ended June 30, 2011 compared to the six-month period ended June 30, 2010— Other income (expenses)” for more information).

In accordance with U.S. GAAP, we have transitioned our Venezuelan operations to highly inflationary status as of January 1, 2010 and have been using the U.S. dollar as the functional currency for these operations since then. In accordance with U.S. GAAP, translation adjustments for prior periods were not removed from equity and the translated amounts for nonmonetary assets at December 31, 2010 become the accounting basis for those assets. Monetary assets and liabilities in “Bolivares Fuertes” were re-measured to the U.S. dollar at the closing parallel exchange rate and the results of the operations in “Bolivares Fuertes” were re-measured to the U.S. dollar at the average monthly parallel exchange rate up to May 13, 2010.

However, on May 14th, 2010, the Venezuelan government enacted reforms to its exchange regulations and close down the parallel market by declaring that foreign-currency-denominated securities issued by Venezuelan entities were included in the definition of foreign currency, thus making the Venezuelan Central Bank (BCV) the only institution that could legally authorize the purchase or sale of foreign currency bonds, thereby excluding non-authorized brokers from the foreign exchange market.

For the period beginning on May 14, 2010 and ending on June 8, 2010 (during which there was no open foreign currency markets) we applied U.S. GAAP guidelines which state that if exchangeability between two currencies is temporarily lacking at the transaction date or balance sheet date, the first subsequent rate at which exchanges could be made shall be used.

Accordingly, the June 9, 2010 exchange rate published by the Venezuelan Central Bank has been used to re-measure transactions during the above mentioned period.

During 2010 and previous years we were able to obtain U.S. dollars using alternative mechanisms other than the Venezuelan Commission of Foreign Exchange Administration (“CADIVI”). These dollars, obtained at a higher exchange rate than the one offered by CADIVI, and held in balance at U.S. bank accounts of our Venezuelan subsidiaries, were used for dividend distributions from our Venezuelan subsidiary. As a result, during 2010, lack of CADIVI approval did not restrict our ability to distribute the full amount of our retained earnings as dividends related to fiscal years 2008 ($0.8 million), and 2009 ($1.8 million). In addition, during 2011, our Venezuelan subsidiary distributed dividends related to earnings for fiscal year 2010, using existing cash balances held in the U.S. bank accounts for a $4.2 million.

Net assets of our Venezuelan subsidiary amount to approximately 7.0% of our consolidated net assets, and cash and investments of our Venezuelan subsidiary held in local currency in Venezuela amount only to approximately 2.9% of our consolidated cash and investments.

Although, the current mechanisms available to obtain U.S. dollars for dividends distributions to shareholders outside Venezuela imply increased restrictions, the Company does not expect that the current restrictions to purchase dollars have a significant adverse effect on its business plans with regard to the investment in Venezuela.

If the U.S. dollar weakens against foreign currencies, the translation of these foreign-currency-denominated transactions will result in increased net revenues, operating expenses, and net income while the re-measurement of our net asset position in U.S. dollars will have a negative impact in our Statement of Income. Similarly, our net revenues, operating expenses and net income will decrease if the U.S. dollar strengthens against foreign currencies, while the re-measurement of our net asset position in U.S. dollars will have a positive impact in our Statement of Income.

The following table sets forth the percentage of consolidated net revenues by segment for the three-and six-month periods ended June 30, 2011 and 2010:


	Six-Month Periods Ended						Three-Month Periods Ended
	*June 30, ()**						*June 30, ()**
(% of total consolidated net revenues)	2011			2010			2011			2010

Brazil		57.1	%		58.0	%		57.6	%		58.6	%
Argentina		17.6			18.1			17.9			18.0
Venezuela		10.7			8.1			10.4			8.5
Mexico		8.1			9.3			7.7			8.9
Other Countries		6.6			6.5			6.4			6.0


(*)		Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table.

The table above may not total due to rounding.

The table below shows the impact on our net revenues, expenses, other income and income tax, net income and shareholders’ equity for a positive or negative 10% fluctuation on all the foreign currencies to which we are exposed as of June 30, 2011 and for the six-month period ended June 30, 2011:

Foreign Currency Sensitivity Analysis


(In millions)	-10%			Actual			+10%
	(1)						(2)
Net revenues	$	145.3		$	130.8		$	119.0
Expenses		(99.9	)		(90.0	)		(81.9	)

Income from operations		45.4			40.8			37.1

Other income (expenses) and income tax related to P&L items		(11.9	)		(10.7	)		(9.8	)
Foreign Currency impact related to the remeasurement of our Net Asset position		(5.4	)		(1.2	)		2.3

Net income		28.1			28.9			29.6


Total Shareholders’ Equity	$	204.1		$	197.6		$	192.3


(1)		Appreciation of the subsidiaries local currency against U.S. Dollar

(2)		Depreciation of the subsidiaries local currency against U.S. Dollar

The table above shows a decrease in our net income when the U.S. dollar weakens against foreign currencies because the re-measurement of our net asset position in U.S. Dollars has a greater impact than the increase in net revenues, operating expenses, and other income (expenses) and income tax lines related to the translation effect. Similarly, the table above shows an increase in our net income when the U.S. dollar strengthens against foreign currencies because the re-measurement of our net asset position in U.S. Dollars has a greater impact than the decrease in net revenues, operating expenses, and other income (expenses) and income tax lines related to the translation effect.

In the past we have entered into transactions to hedge portions of our foreign currency translation exposure but during 2011 we have not entered into any such agreement.

Interest

Our earnings and cash flows are also affected by changes in interest rates. These changes can have an impact on our interest expenses derived from selling our MercadoPago receivables. At June 30, 2011, MercadoPago’s funds receivable from customers totaled approximately $7.9 million. Interest fluctuations could also negatively affect certain of our fixed rate and floating rate investments comprised primarily of time deposits, money market funds, investment grade corporate debt securities, and sovereign debt securities. Investments in both fixed rate and floating rate interest earning products carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than predicted if interest rates fall.

Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. As of June 30, 2011, the average duration of our available for sale securities, defined as the approximate percentage change in price for a 100-basis-point change in yield, is 3.49%. If interest rates were to instantaneously increase (decrease) by 100 basis points, the fair market value of our available for sale securities as of June 30, 2011 could decrease (increase) by approximately $1.8 million.

Our short-term and long-term investments, which are classified on our balance sheet as current assets in the amount of $72.4 million and as non-current assets in the amount of $50.2 million, respectively, can be readily converted at any time into cash or into securities with a shorter remaining time to maturity. We determine the appropriate classification of our investments at the time of purchase and re-evaluate such designations as of each balance sheet date.

Equity Price Risk

Our board of directors adopted the 2009, 2010 and 2011 long-term retention plan (the “2009, 2010 and 2011 LTRP”) payable as follows:

	•		eligible employees will receive a fixed cash payment equal to 6.25% of his or her 2009 and/or 2010 and/or 2011 LTRP bonus once a year for a period of eight years starting in 2010 and/or 2011 and/or 2012 (the “2009, 2010 and 2011 Annual Fixed Payment”); and

	•		on each date we pay the Annual Fixed Payment to an eligible employee, he or she will also receive a cash payment (the “2009, 2010 and 2011 Variable Payment”) equal to the product of (i) 6.25% of the applicable 2009 and/or 2010 and/or 2011 LTRP bonus and (ii) the quotient of (a) divided by (b), where (a), the numerator, equals the Applicable Year Stock Price (as defined below) and (b), the denominator, equals the 2008, 2009 and 2010 Stock Price, defined as $13.81, $45.75 and $65.41 for the 2009, 2010 and 2011 LTRP, respectively, which was the average closing price of the Company’s common stock on the NASDAQ Global Market during the final 60 trading days of 2008, 2009 and 2010, respectively. The “Applicable Year Stock Price” shall equal the average closing price of the Company’s common stock on the NASDAQ Global Market during the final 60 trading days of the year preceding the applicable payment date.

The 2009, 2010 and 2011 Variable Payment LTRP liability subjects us to equity price risk. At June 30, 2011, the total contractual obligation fair value of our 2009, 2010 and 2011 Variable Payment LTRP liability amounts to $13.3 million. As of June 30, 2011, the accrued liability related to the 2009, 2010 and 2011 Variable Payment portion of the LTRP included in Social security payable in our condensed consolidated balance sheet amounts to $4.5 million. The following table shows a sensitivity analysis of the risk associated with our total contractual obligation related to the 2009, 2010 and 2011 Variable Payment if our stock price were to increases or decreases by up to 40%.


	As of June 30, 2011
	MercadoLibre, Inc		2009, 2010 and 2011 variable
(In US dollars)	Equity Price		payment LTRP liability
Change in equity price in percentage

40%		118.45		18,594,357
30%		109.99		17,266,189
20%		101.53		15,938,021
10%		93.07		14,609,852
Static (*)		84.61		13,281,684
-10%		76.15		11,953,516
-20%		67.69		10,625,347
-30%		59.23		9,297,179
-40%		50.77		7,969,010


(*)		Average closing stock price for the last 60 trading days of the closing date


Item 4		— Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Evaluation of disclosure controls and procedures

Based on the evaluation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) required by Exchange Act Rules 13a-15(b) or 15d-15(b), our chief executive officer and our chief financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

Changes in Internal Controls Over Financial Reporting

There were no changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the three-month period ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION


Item 1		— Legal Proceedings

From time to time, we are involved in disputes that arise in the ordinary course of our business. The number and significance of these disputes is increasing as our business expands and our company grows. Any claims against us, whether meritorious or not, may be time consuming, result in costly litigation, require significant amounts of management time, result in the diversion of significant operational resources or require expensive implementations of changes to our business methods to respond to these claims. See “Item 1A—Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 as filed with the Securities and Exchange Commission on February 25, 2011, for additional discussion of the litigation and regulatory risks facing our company.

As of June 30, 2011, our total reserves for proceeding-related contingencies were approximately $2.1 million to cover legal actions against us in which we have determined that a loss is probable. The proceeding-related reserve is based on developments to date and historical information related to actions filed against our company. We do not reserve for losses we determine to be possible or remote.

As of June 30, 2011, there were 348 lawsuits pending against our Brazilian subsidiary in the Brazilian ordinary courts. In addition, as of June 30, 2011, there were more than 1,719 lawsuits pending against our Brazilian subsidiary in the Brazilian consumer courts, where no lawyer is required to file or pursue a claim. In most of these cases, the plaintiffs asserted that we were responsible for fraud committed against them, or responsible for damages suffered when purchasing an item on our website, when using MercadoPago, or when we invoiced them. We believe we have meritorious defenses to these claims and intend to continue defending them.

We have described below material developments that occurred during the quarter ended June 30, 2011 to pending legal proceedings which we have determined may be material to our business, all of which have been previously disclosed in our Annual Report on Form 10-K. We have excluded ordinary routine legal proceedings incidental to our business. In each of these proceedings we also believe we have meritorious defenses, and intend to continue defending these actions. We have established a reserve for those proceedings which we have considered that a loss is probable.

On March 17, 2006, Vintage Denim Ltda., or Vintage, sued our Brazilian subsidiaries MercadoLivre.com Atividades de Internet Ltda. and eBazar.com.br Ltda. in the 29th Civil Court of the County of São Paulo, State of São Paulo, Brazil. Vintage requested a preliminary injunction alleging that these subsidiaries were infringing Diesel trademarks and their right of exclusive distribution as a result of sellers listing allegedly counterfeit and original imported Diesel branded clothing through the Brazilian page of our website, based on Brazilian Industrial Property Law (Law 9,279/96). Vintage sought an order enjoining the sale of Diesel-branded clothing on our platform. A preliminary injunction was granted on April 11, 2006 to prohibit the offer of Diesel-branded products, and a fine for non-compliance was imposed in the approximate amount of $5,300 per defendant per day of non-compliance. We appealed that fine and obtained its suspension in 2006. Because our appeal of the preliminary injunction failed, in March of 2007, Vintage presented petitions alleging our non-compliance with the preliminary injunction granted to Vintage and requested a fine of approximately $3.3 million against us, which represents approximately $5,300 per defendant per day of alleged non-compliance since April 2006. In July 2007, the judge ordered the payment of the fine mandated in the preliminary injunction, without specifying the amount. When we were officially notified of the amount of the fine, we intend to present a new appeal against the application of the fine. In September 2007, the judge decided that (i) our Brazilian subsidiaries were not responsible for alleged infringement of intellectual property rights by its users; and that (ii) the plaintiffs did not prove the alleged infringement of its intellectual property rights. However, the decision maintained the injunction until such ruling is non-appealable. On July 26, 2011 the State Court of Appeals of the State of São Paulo confirmed the judge’s ruling regarding our subsidiary’s non-responsibility. The decision on the appeal regarding the decision that maintained the preliminary injunction is still pending.

City of São Paulo Tax Claim

On September 13, 2007, the Company paid to tax authorities in São Paulo, Brazil approximately $1.1 million, consisting of $1.0 million in accrued taxes and $0.1 million in fines, related to its Brazilian subsidiary’s activities in São Paulo for the period 2002 through 2004. The Company had reserved approximately $1.1 million against these taxes as of December 31, 2006 so no additional provision was recorded for the payment. São Paulo tax authorities have also asserted taxes and fines against us relating to the period from 2005 to 2007 in an approximate additional amount of $5.9 million according to the exchange rate at that time. In January 2005, the Brazilian subsidiary had moved its operations to Santana de Parnaíba City, Brazil and began paying taxes to that jurisdiction, therefore the Company believes it has strong defenses to the claims of the São Paulo authorities with respect to this period. On August 31, 2007, the Company presented administrative defenses against the authorities’ claim. On September, 12, 2009 the tax authorities ruled against the Brazilian subsidiary. On October 13, 2009, the Company presented an appeal to the Conselho Municipal de Tributos or São Paulo Municipal Council of Taxes which reduced the fine. On February 11, 2011 the Company appealed this decision to the Câmaras Reunidas do Egrégio Conselho Municipal de Tributos (Superior Chamber of the São Paulo Municipal Council of Taxes) which maintained the reduction of the infraction to approximately $5.8 million including surcharges and interest. With this decision the administrative stage is finished, therefore the Company will contest the tax and the fine in the justice. As of the date of this report, the Company believes the risk of loss is remote, and as a result, has not established a reserve against this claim.

State of São Paulo Customer Service Level Claim

On September 1, 2010, a state prosecutor of the State of São Paulo, Brazil presented a claim against the Company’s Brazilian subsidiary. The state prosecutor alleges that the Brazilian subsidiary should improve its customer service level and provide (among other things) a telephone number for customer support. On November 17, 2011, the Judge of the first instance court granted an injunction against the Brazilian subsidiary imposing the obligation to provide customer service over telephone means within 60 days with a penalty of approximately $ 65,000 per day of non-compliance. On April 8, 2011, the Company was summoned of the lawsuit and the injunction. On April 14, 2011, the Company presented recourse to the lower court; even though, the injunction was not lifted, an extension of 30 days was granted, and the non-compliance fine would start running as of July 11, 2011. On April 20, 2011, the Company presented an appeal and requested to suspend the effects of the injunction issued by the lower court until the appeal is decided by State Court of Appeals which was granted on May, 4, 2011.

State of Rio de Janeiro Fraud Claim

On April 15, 2011, a state prosecutor of the State of Rio de Janeiro, Brazil presented a claim against the Brazilian subsidiary. The state prosecutor requests several clauses of the Terms of Service of the Website shall be considered null and void. The prosecutor alleges that the Brazilian subsidiary should be held liable for any fraud committed by sellers on the Brazilian version of the Company’s website, or responsible for damages suffered by buyers when purchasing an item on the Brazilian version of the MercadoLibre website. On May 5, 2011, the Lower Court Judge granted an injunction in favor of the State of Rio de Janeiro prosecutor, declaring that several clauses in the Terms of Service of the Website that limit the responsibility of the Brazilian subsidiary shall be considered null and void and ordered the Brazilian subsidiary to remove them, with a penalty of approximately $640 per day of non-compliance, according to the exchange rate at that moment. On July 8, 2011 the Company presented a recourse to the lower court requesting a suspension of the effects of the injunction. On July 13, 2011 the lower Court Judge suspended the injunction and set a hearing on July 20, 2011, however no settlement was reached by the parties on the hearing. The Company presented its defense on July 25, 2011.

Intellectual Property Claims

In the past third parties have from time to time claimed, and others may claim in the future, that we have infringed their intellectual property rights. We have been notified of several potential third-party claims for intellectual property infringement through our website. These claims, whether meritorious or not, are time consuming, can be costly to resolve, could cause service upgrade delays, and could require expensive implementations of changes to our business methods to respond to these claims. See “Item 1A Risk factors—Risks related to our business—We could potentially face legal and financial liability for the sale of items that infringe on the intellectual property rights of others and for information disseminated on the MercadoLibre marketplace”.


Item 1A		— Risk Factors

During this quarter there have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.


Item 6		— Exhibits


	10.1	Agreement dated June 2, 2011, entered into by MercadoLibre Venezuela S.A. a subsidiary of MercadoLibre, Inc. with Inversiones 1182450, C.A. to acquire an office property in Caracas, Venezuela.*

	31.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

	31.2	Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

	32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

	32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

101.INS		XBRL Instance Document***

101.SCH		XBRL Taxonomy Extension Schema Document***

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document***

101.LAB		XBRL Taxonomy Extension Label Linkbase Document***

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document***


*		Filed herewith

**		Furnished herewith

***		XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities and Exchange Act of 1933, is deemed not filed for purposes of section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	MERCADOLIBRE, INC.
	Registrant

Date: August 8, 2011	By:	/s/ Marcos Galperín
		Marcos Galperín
		President and Chief Executive Officer

	By:	/s/ Pedro Arnt
		Pedro Arnt
		Executive Vice President and Chief Financial Officer

MercadoLibre, Inc.

INDEX TO EXHIBITS


	10.1			Agreement dated June 2, 2011, entered into by MercadoLibre Venezuela S.A. a subsidiary of MercadoLibre, Inc. with Inversiones 1182450, C.A. to acquire an office property in Caracas, Venezuela.*

	31.1			Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

	31.2			Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

	32.1			Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

	32.2			Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**


*		Filed herewith

**		Furnished herewith