Latin America consists of South America, Central America, the Caribbean and Mexico and, with over 550 million people, represents 8.5% of the world’s population. Latin America’s combined annual gross domestic product in 2006 was estimated to be greater than $2.9 trillion, representing 6.3% of the estimated world GDP for that year and approximately 8.1% on a purchasing power parity basis. This combined GDP estimate is similar to the GDP of Germany and the United Kingdom combined, as adjusted to reflect purchasing power parity among countries.

The Internet has emerged as a global medium enabling millions of people worldwide to share information, communicate and conduct business electronically. The number of Internet users has grown worldwide from approximately 534 million at the end of 2000 to approximately 1,114 million by March 10, 2007, according to InternetWorldStats.com, a site of the Miniwatts Marketing Group. In Latin America, the number of Internet users has grown from 18.1 to 96.4 million during the same period, representing a compounded annual growth rate of 30.7% compared to 11.2% in North America.

Latin America’s approximately 96.4 million Internet users represent 8.7% of the world’s Internet user population. Brazil, Mexico and Argentina have approximately 65.3 million Internet users combined, which represent approximately 67.7% of Latin America’s Internet population. Estimates for Internet penetration in Latin America range from a high of 42.4% for Chile and 34.0% for Argentina to 17.2% for Brazil and 6.5% for Panama, with an average penetration of approximately 17.3%, as compared to 69.9% for the United States.

The significant growth of the Internet in Latin America has been enabled by a relatively large and growing telecommunications infrastructure.

MercadoPago was launched in Argentina in November of 2003 and then was gradually introduced in Brazil, Mexico and Venezuela, and is currently being introduced in Chile and Colombia, in that order.

MercadoPago provides an escrow service where, after initiating a transaction on the Company’s marketplace, a buyer will deposit money (typically by bank transfer, credit card payment or cash deposit) to be held by MercadoPago.

Upon notice that the buyer has paid MercadoPago for the listed item, the seller will then ship that item to the buyer and once the buyer receives the item, the buyer will authorize MercadoPago to release the sale amount of the purchased item to the seller’s MercadoPago account.

With MercadoPago, individual sellers can offer a much broader array of payment options to buyers without the need of having a credit card merchant account or collection accounts with different banks. MercadoPago enables buyers to have their payments released only after they have received a purchased item.

The Company’s MercadoPago user network builds on the existing financial infrastructure of users’ bank accounts, credit card relationships and the corresponding network of payment mechanisms to create an efficient, cost-effective and relatively secure online payments solution.

Cost of net revenues was $12.1 million for 2006, an increase of $5.9 million, or 96.9%, from cost of net revenues of $6.1 million for 2005.

Product and technology development expenses were $3.1 million for 2006, an increase of $0.9 million, or 40.3%, from $2.2 million for 2005.

Sales and marketing expenses were $23.4 million for 2006, an increase of $8.6 million, or 58.6%, from $14.7 million for 2005.