Back to GetFilings.com

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

Loudeye Technologies, Inc.

1130 Rainier Avenue South, Seattle, WA 98144

206-832-4000

Securities registered pursuant to Section 12(b) of the Act:

      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 o          No þ

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

      The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $22,587,000 as of March 12, 2002, based upon the closing sale price on the Nasdaq National Market reported for such date. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

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

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the registrant’s Proxy Statement relating to the registrant’s 2002 Annual Meeting of Shareholders scheduled to be held on May 23, 2002 are incorporated by reference into Part III of this Report.

Table of Contents

LOUDEYE TECHNOLOGIES, INC.

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

1

Table of Contents

PART I

Item 1     Business

Forward Looking Statements

      Except for the historical information contained in this Annual Report on Form 10-K, the matters discussed herein, including, but not limited to management’s discussion and analysis of financial condition and results of operations in Item 7 of Part II hereof, and statements regarding regulatory approvals, operating results and capital requirements, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, and are made under the safe harbor provisions thereof. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of terms like these or other comparable terminology. These forward-looking statements are only predictions and actual events or results may differ materially from those projected. Specific factors that could cause actual results to differ materially from those projected include, but are not limited to, uncertainties related to our early stage of business development; uncertainties related to the effectiveness of our technology and the development of our products and services; dependence on and management of existing and future corporate relationships; dependence on licensed content and technology; dependence on proprietary technology and uncertainty of patent protection; management of growth; history of operating losses; future capital needs and uncertainty of additional funding; dependence on key personnel; intense competition; existing government regulations and changes in, or the failure to comply with, government regulations, and other risks detailed below, including the Risk Factors in Item 7 of Part II “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and those included from time to time in the Company’s other reports with the SEC and press releases, copies of which are available from the Company upon request. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to publicly release any revisions of the forward-looking statements contained herein to reflect events or circumstances after the date hereof. Readers are cautioned not to place undue reliance on these forward-looking statements, as our business and financial performance are subject to substantial risks and uncertainties.

Company Overview

      We are a leading provider of services which facilitate the use of digital media for live and on-demand applications in enterprise communication, marketing and entertainment. Our services enable our customers to outsource the management and delivery of audio, video and other visual content on the Internet and other digital distribution platforms. Our technical infrastructure and proprietary applications comprise an end-to-end solution, including rich media application support, webcasting, hosting, storage, encoding, capture and media restoration. Our solutions reduce complexity and cost of internal solutions, while supporting a variety of digital media strategies and customer business models.

      In 2001 we served over 300 customers directly including The Coca Cola Company, Microsoft, XM Satellite Radio, CDNow, Amazon, America Online, Robertson Stephens, Universal Music Group, barnesandnoble.com, the Metropolitan Opera and the New York City Ballet.

      Traditional communication methods and media formats have expanded to include a variety of digital technologies and rich media formats. The use of the Internet as a medium for communication and media distribution has continued to evolve and grow in recent years. For example, large and medium-sized enterprises now use Webcasting as a cost-effective means to communicate to employees, customers, investors, partners and the public at large. Traditional media & entertainment companies, such as major recording labels and radio broadcasters, have faced significant challenges posed by the distribution of music digitally. Additionally, retailers and advertisers have begun to use digital media to aid in the selling of their products.

2

Table of Contents

      We developed our solutions to address the new methods of communication, media distribution and content management that have emerged over recent years. We provide our services via two primary business segments, Digital Media Services and Media Restoration Services.

	•	Digital Media Services. Our Digital Media Services enable enhanced enterprise communication, digital media management and distribution via the Internet and other emerging technologies.

Our enhanced enterprise communication services include highly scalable, live and “on-demand” audio and video Webcasting services, supported by proprietary applications such as synchronized streaming slide presentation capabilities. Using our services, enterprises can offer large and small audiences access to Webcasts of a variety of corporate events, such as product launches, investor earnings calls, conferences and distance learning seminars. The target customers for these solutions include large and medium-sized enterprises across a range of industry segments.

Our other Digital Media Services encompass a variety of related services primarily focused on the digital music market, including digital music encoding, metadata licensing, audio fingerprint database generation, hosted music sample services, hosted music download services, digital rights management license clearing, online radio solutions, and rich media advertisement insertion and sales. Supporting some of these offerings, we have music licenses and relationships with the five major recording labels and hundreds of independent record labels. The target customers for our digital music services include traditional and Internet-based retailers, media and entertainment companies, including media portals, broadcasters, the major record labels and advertisers.

	•	Media Restoration Services. Our Media Restoration Services solutions address the need to restore and migrate legacy media archive collections to current media formats. The target customers for these services include most of the customers for our Digital Media Services as well as large legacy media archives, specifically including those found at major libraries, universities and enterprises.

      Our capabilities include a robust production and rich media delivery infrastructure, featuring significant capacity to manage customer requirements and a flexible and extensible platform to enable tailored solutions and serve a diverse range of market opportunities. Our solutions offer customers the following key benefits:

	•	Comprehensive digital media services to address enterprise communication, marketing and entertainment markets;
	•	End-to-end outsourced solutions to reduce complexity and cost of in-house implementations;
	•	High degree of flexibility to enable tailored customer solutions;
	•	Scalable systems and network infrastructure to provide significant capacity and reliability; and
	•	Strategic relationships to facilitate authorized digital media strategies.

      We have made a significant investment in capabilities to address the major processes supporting the end-to-end management and delivery of digital media, from content capture to content distribution, including:

	•	Advanced application services. Our applications improve the end user experience while supporting a variety of customer requirements. As part of our service offerings we provide applications for streaming slide presentations, audience polling and chat sessions, flexible reporting and management, customized templates, content syndication and rich media content insertion;
	•	Digital media distribution. Digitally formatted content can be delivered to customers via a range of methods from secured file delivery to a fully-hosted streaming or download service. Our scalable streaming network infrastructure can simultaneously deliver multiple Webcasts to small and large audiences and support our music samples service with high levels of reliability;
	•	Media processing services. Content is processed to customer specifications via our proprietary encoding and transcoding systems and media restoration capabilities;

3

Table of Contents

	•	Digital media storage and access. Our proprietary systems and technology enable the scalable archiving, retrieval and processing of large inventories of digital media. Digitized content is stored on our high capacity storage array systems and accessed via our proprietary, automated, web-based access tools to search, provision and manage such content; and
	•	Traditional source media ingest and capture. Source content is captured live via our extensive signal ingress capabilities, including satellite downlinks, video fiber, frame relay, ISDN, automated telephony-to-IP switches and teleconferencing equipment, as well as on-demand via processing of archived source audio and video in a wide range of legacy and digital formats.

      Our digital media services and infrastructure are robust and highly scalable. In 2001 our Activate subsidiary webcast approximately 6,000 events. In 2001 Loudeye encoded and delivered millions of digital music and audio fingerprint files and streamed approximately 620 million music samples.

      Our objective is to leverage our existing customer base and investments in infrastructure and applications to grow revenues and achieve profitability. We seek to achieve these objectives through the following key strategies:

	•	Expanding our direct and indirect sales channels;
	•	Lowering our cost of delivery and increasing customer integration via automation and strategic relationships;
	•	Developing and marketing an end-to-end suite of products and services; and
	•	Selectively pursuing strategic acquisitions to enter new markets, expand our suite of services and product offering, increase our customer base and strengthen our market position.

      Loudeye was founded as a Washington limited liability company in 1997 and was incorporated in Delaware in 1998. Our headquarters are located in Seattle, Washington, and we have an additional facility in New York, New York.

Industry Background

      A variety of trends are affecting the traditional methods that companies communicate as well as distribute and market media and other goods. The Internet has developed into a very efficient and cost effective medium to communicate and conduct commerce with millions of users worldwide. The increase in broadband access and average Internet connection speeds, as well as continued development of digital media technologies, has increased the quality and reliability of digital media delivery over the Internet and other digital distribution platforms. The consumption of digital media by Internet users has increased, driving companies to consider it as a medium for enterprise communication, media and entertainment, marketing and advertising.

      Internet Usage and Broadband Access Have Increased. Internet usage and access speeds increased in 2001, thus expanding the potential audience for digital media applications. According to Jupiter Media Metrix, as of December 2001, more than 141 million people in the United States used the Internet, up from approximately 126 million in 2000. In addition, average Internet access speeds in the home continue to increase. In January 2002, Jupiter estimated that at the end of 2001 approximately 10 million U.S. households, or 15% of the total, had high speed access, an increase of 90% from 2000 levels. According to those estimates, broadband users, including those at work, totaled approximately 38 million or 32% of at-home and at-work Internet users at the end of 2001.

      Digital Media Technologies Are Being Adopted and Refined Creating Large Potential Audiences and User Bases. Technology that enables the consumption of digital media using personal computers and other connected devices was widely adopted by users in the United States in 2001. For example, Jupiter Media Metrix estimates that already by the beginning of 2001 media player applications were installed on approximately 99 percent of home personal computers in the United States, enabling the consumption of streaming and downloadable digital audio and video content. When combined with increased Internet usage

4

Table of Contents

      Companies Have Begun to Use Digital Media Technologies for a Variety of Applications. Companies in a range of industries are beginning to utilize audio and video on the Internet to communicate, market products, increase customer awareness and sales. In a June 2001 survey of leading executives in a wide range of industries, Jupiter Media Metrix found that over 35% of the executives’ companies were offering some sort of streaming video or audio experience, and over 40% of those who did not currently do so expected to deploy streaming video and audio within the next year. For example, companies are utilizing digital media technologies to enable such activities as enhanced enterprise communication, digital music distribution and rich media marketing programs.

	•	Enhanced Enterprise Communication. The Internet has proven to be a highly effective medium for enterprise communication, with a wide range of businesses seeking to utilize applications such as e-mail and corporate and intranet websites to increase the efficiency of operations and enhance business interactions. The demand for Internet communication services is driven in part by globalization of operations, geographically-dispersed work teams, workforce training, disclosure requirements and desire to reduce operating costs. Companies are beginning to utilize the Internet for additional advanced communication applications, including web collaboration, web conferencing, event webcasting and application demonstration. In March 2001, Jupiter Media Metrix estimated that enterprise streaming in North America was an approximately $140 million market in 2000, growing to over $2.8 billion by 2005.
	•	Digital Music Distribution. In 2001 many consumers used the Internet to search, acquire and listen to music, prompting companies in the music industry, including the major music companies, music retailers, media portals and music distribution companies to closely investigate the use of these new distribution methods in their businesses. Music was a popular category for online users in 2001, as Jupiter Media Metrix estimated that music websites reached approximately 41 million, or over one third, of online users in 2001, and Jupiter Research estimated that 46% of all online buyers purchased music goods, second only to books in their ranking of categories of goods purchased online. The online music market in 2001 was primarily comprised of the online sale of compact discs and related music merchandise. In November 2001, Jupiter Research estimated that the domestic online music market in 2001, which includes both the domestic sale of compact discs online as well as digital distribution of music, equaled approximately $1.0 billion and will increase to approximately $5.5 billion in 2006, with sales of digitally distributed music, including the sale of digital downloads and digital music subscription services, increasing over time to represent approximately 30% of the market by 2006.
	•	Rich Media Marketing and Advertising. Rich media marketing and advertising is a small part of the overall online market, but may grow in the future. In August 2001, Jupiter Research estimated that the online advertising market equaled approximately $5.7 billion or approximately 3% of the overall advertising market, in 2001 and will grow to $15.4 billion or 7% of the overall market, by 2006. Jupiter estimates that rich media advertising, including streaming media advertising, represented 7% of the online advertising market in 2001 but will increase to 32% of that market by 2006.

      Challenges of Digital Media Distribution. We believe that as the Internet continues to evolve as a mass communication medium, companies will spend an increasing amount of resources to offer high-quality video and audio content for various applications including corporate communications, distance learning, customer acquisition and retention, and developing alternative revenue streams from digital media distribution. However, the technologies and standards that form the basis of traditional audio and video distribution are not

5

Table of Contents

      Companies must internally develop the ability to deliver, or hire outside firms to migrate, their existing and newly created audio and video content onto the Internet and other digital platforms. The core competencies required to complete this migration process include the following areas:

	•	Application and business model support to enhance audio and video experience, track and report usage, monetize and protect content, and at times obtain and comply with complex copyright licenses from original content owners;
	•	Scalable and reliable hosting and network distribution;
	•	High quality encoding and third-party digital media technology support;
	•	Digital media archive management;
	•	Source media and metadata capture; and
	•	Legacy archive preservation and restoration.

      It is often difficult and costly for enterprises, content owners and media companies to develop and manage all of these core competencies themselves. They often do not have the internal resources or time to develop the expertise necessary to address these problems without disrupting their core business activities.

      Moreover, apart from technical challenges, companies who seek to distribute digital media over the Internet are often faced with challenges in obtaining copyright licenses from a variety of content owners. For example, digital music copyrights often address differing activities, such as reproduction and performance, which may require separate licensing arrangements or which may be held by different parties, such as publishers, artists and record labels. The effort to obtain the necessary rights by such third parties is often significant, and frequently disrupts, delays or prevents the launch of a wide range of digital media business models.

The Loudeye Solution

      We are a leading provider of services which facilitate the use of digital media for live and on-demand applications in enterprise communication, marketing and entertainment. Our services enable our customers to outsource the management and delivery of audio, video and other visual content on the Internet and other digital distribution platforms. Our solutions reduce complexity and cost of internal solutions, while supporting a variety of digital media strategies and customer business models.

      Our technical infrastructure, proprietary applications and digital media services comprise an end-to-end outsourced solution for enhanced communication and digital media distribution, including:

	•	Advanced digital media application services;
	•	Digital media distribution infrastructure and services;
	•	Media processing services;
	•	Digital media storage and access;
	•	Traditional source media ingest and capture; and
	•	Media restoration and migration services.

6

Table of Contents

      Our solutions offer customers the following key benefits:

      Comprehensive digital media services to address enterprise communication, marketing and entertainment markets. Customers in a range of industries are beginning to deploy digital media to communicate, market products and distribute media and entertainment. Our proprietary suite of Webcasting applications and services, coupled with our scalable network and production infrastructure technologies, provide a simple, cost-effective way for corporations to communicate with large and small online audiences. Using our services, large and medium-sized enterprises can offer their target audiences access to Webcasts of a variety of corporate events, such as product launches, investor earnings calls, conferences and distance learning seminars. In addition, we support online marketing initiatives of our customers through our other digital media services, including our leading music samples service, online radio services, advertisement insertion solutions, music download services and advertisement sales. Finally we provide outsourced services to support the management and distribution of our customers’ digital media libraries, including scalable encoding and delivery services.

      End-to-end outsourced solutions to reduce complexity and cost of in-house implementations. Large and medium-sized enterprises and content owners that want to encode and distribute their video and audio content can do so either from their own production capabilities and network servers or through third-party service providers. Our services and applications provide a comprehensive solution through a single outsourced solution provider. Our solutions reduce complexity and allow our customers to avoid development and ongoing maintenance costs of establishing internal capabilities. Our end-to-end capabilities address a series of highly complex process steps required to deploy digital media effectively and reliably to large audiences. Because our customers can leverage our significant investments in these processes and avoid purchasing capital equipment, developing system expertise, training personnel and managing evolving technology platforms, we can deliver quality and reliable services for lower cost than the development and maintenance of comparable internal solution. In addition, in certain of our digital music services, we have obtained copyright licenses which are transferable to our customers, enabling them to avoid the cost and effort to negotiate and obtain such licenses for themselves.

      High degree of flexibility to enable tailored customer solutions. Because our customers require flexibility in the manner which their content is captured, as well as in the formats and manner their digital media is distributed, we offer a wide range of media ingest and capture methods and support a wide range digital media formats and other third-party technologies with our digital media services. In addition, our hosting services and proprietary applications provide additional support to customers, enabling clients access to advanced reporting and management tools and offering value-added services like digital rights management, advertisement insertion and advertisement sales, to enable a variety of our customers’ business model and strategies.

      Scalable systems and network infrastructure to provide significant capacity and reliability. Corporations and content owners may encounter capacity and technological limitations if they attempt to deliver digital media to large numbers of end-users using in-house production capabilities and network servers. Our solution is highly scalable, allowing us to process a large number of simultaneous audio or video events and to seamlessly add additional capacity, if necessary. We have developed proprietary products and services based upon an automated and distributed architecture of encoding, conversion and media enhancement systems. We have one of the most extensive signal ingress capacities in the industry allowing us to acquire hundreds of simultaneous audio and video signals. Additionally, we can handle a wide range of other traditional and legacy media formats. The content is then encoded by hundreds of distributed video/audio encoding servers. The content can be delivered back to customers in raw digital formats on a variety of methods, or hosted and served by our proprietary cell-based streaming network architecture. Our facility’s design is modular and scalable to accommodate growth and changes in technology.

      Strategic relationships to facilitate authorized digital media strategies. From our inception we have positioned our products and services as the enabling infrastructure to support content owners in the authorized distribution of digital media over the Internet and new digital distribution platforms. At times, obtaining the requisite copyright licenses can prove challenging to customers, as they must often obtain copyright licenses from a variety of rights holders. For example, these copyrights often address differing activities related to the

7

Table of Contents

Company Strategy

      Our objective is to leverage our existing investment in infrastructure and applications to grow revenues and achieve profitability. We seek to achieve these objectives through the following key strategies:

      Expanding our direct and indirect sales channels. We plan to expand our direct sales force and indirect reseller and referral partnership channel. The majority of these efforts will focus on our enterprise communication division’s direct salesforce, which targets large and medium-sized businesses in diverse vertical markets, such as computer software, business services, manufacturing and financial services. Our indirect sales strategy includes entering into agreements with companies, such as traditional communication service providers, to leverage their established customer bases. These indirect channel partners resell our services, provide referrals, or embed our services in their products. We see a significant opportunity to improve the revenue derived from these channels through co-marketing, training and other channel management programs.

      Lowering our cost of delivery and increasing customer integration via automation and strategic relationships. We continue to focus on developing new and enhancing existing proprietary solutions to enable us to address customer needs more effectively and efficiently. Currently we have research and development initiatives to increase levels to automation of our internal systems as well as customer interfaces. We are also investigating strategic relationships with technology providers to accelerate this process. We feel that if we are successful in these areas we may be able to improve our customer integration, increasing sales opportunities, and lower our cost of delivery, improving profitability.

      Developing and marketing an end-to-end suite of products and services. We intend to leverage our existing capabilities to support new products and value-added services in existing and new markets. We will continue to add or enhance the features and functions of our application platform and services based on feature requests from customers, competitive analysis and assessment of business opportunities. By offering an end-to-end solution for customers, we are able to satisfy wide-ranging client needs and, as a result, cross-sell a variety of our services to our customers. In addition, we provide a more compelling alternative to in-house solutions.

      Selectively pursuing strategic acquisitions to enter new markets, expand our suite of services and product offering, increase our customer base and strengthen our market position. In 2000 we completed one acquisition and 2001 we completed five acquisitions. We intend to selectively pursue strategic acquisitions to enter new markets, expand our suite of services and product offering, increase our customer base and strengthen our market position. In addition, we continuously look for components and technologies to augment our solutions through partnering with industry leaders outside of our core area of expertise.

Products and Services

      Our products and services encompass an end-to-end solution for customers, from content restoration and capture to content distribution, which includes Digital Media Services and Media Restoration Services.

      Our Digital Media Services enable enhanced enterprise communication and digital media management and distribution via the Internet and other emerging technologies. Our Digital Media Services provide a complete suite of services for customers offered via long-term and project-specific contracts.

8

Table of Contents

      Our enhanced enterprise communication services include highly scalable, live and on-demand audio and video Webcasting services, supported by proprietary applications such as synchronized streaming slide presentation capabilities. Using our services, enterprises can offer small and large audiences access to Webcasts of a variety of corporate events, such as product launches, investor earnings calls, conferences and distance learning seminars. The target customers for these solutions include medium and large-sized enterprises across a range of industry segments.

      Our other Digital Media Services include a variety of related services primarily focused on the digital music market. These services include digital music encoding, metadata licensing, advanced fingerprint database generation, hosted music sample services, hosted music download services including digital rights management license clearing, online radio solutions and rich media advertisement insertion and sales. Supporting these digital music service offerings, we have certain content licenses and relationships with the five major recording labels and hundreds of independent music labels. The target customers for our digital music services include traditional and Internet-based retailers, media and entertainment companies, including media portals, broadcasters and the major record labels.

      We combine three layers of rich media value chain expertise — application services, hosting and streaming services and encoding services — in multiple ways to provide services to our customers. Services are priced based on several criteria, including the extent and volume of infrastructure usage, particularly of network and storage; the means used to capture the content; the applications used; and the extent of additional value-added services provided across the entire value chain.

      Application Services. We have built an application layer of proprietary products to facilitate and improve the end user experience, provide the client with reporting and management tools, and allow the client to implement new business models or expand current initiatives. These applications are deployed on an application services provider, or ASP, basis whereby the software runs on equipment managed and monitored by us. Our customers have flexibility and options to choose their individual level of customization or integration.

      Our Webcasting applications provide customers with sophisticated yet easy to use tools for producing, managing and measuring live and on-demand webcasts. These applications include:

	•	Our Active Conference Center application, which allows clients to manage multiple aspects of corporate events, from initial reservations and specification of details to reporting of audience registration;
	•	Our Presenter Controlled Slides application which enables further control features to streaming presentations by allowing the presenter to control the flow of the streaming slide presentation during a webcast. Further, the application quickly indexes, synchronizes, and archives these webcasts for viewers that were unable to attend the event; and
	•	Our Active Report Generator supports all of our webcasting products. This application is a web-based, real-time reporting system that provides instantaneous audience measurement. It gives content providers valuable and immediate information and statistics regarding their content streams.

      We have additional proprietary applications that support a variety of business models and customer strategies. Our advertisement insertion solutions support dynamic content insertion that enable digital media advertising and marketing campaigns. Other applications we have developed include a syndicated online radio streaming platform as well as a digital download platform that includes rights management clearing. These applications can enable customers to promote, manage, monetize the digital media offerings.

      Hosting and Streaming Services. Our hosting services allow content to be packaged and converted into a variety of streaming media and digital download formats via our encoding services and hosted in a central media repository.

      We provide comprehensive webcasting solutions that enable enterprises to broadcast audio, video, and visually oriented communications over the Internet. Our proprietary suite of webcast applications and services, coupled with our scalable network and production infrastructure technologies provide a simple, cost-effective

9

Table of Contents

      We provide our clients with the infrastructure and service components necessary to deploy a streaming media offering as part of an Internet or intranet presence. Our enterprise clients use this offering to augment and support their existing business initiatives. We provide streaming services for audio and video conferencing, distance learning, corporate or departmental meetings, presentations, conferences, roadshows and other investor relations offerings.

      Live events involve broadcasting content that audience members listen to or watch simultaneously as the content originates. Our live event services range from audio-only conference calls and interactive events with slides to video product launches and customized video conference events with audience feedback. We also provide on-demand streaming services, which allow an audience to listen to or view media content at any time. The content of our on-demand clients spans both business content, such as investor relations calls, corporate training, and consumer content, such as sports events and highlights. Most of our live events are also captured for replay as on-demand content.

      Our web broadcasting capabilities allow clients to significantly extend the reach of traditional conferencing services or live events to enable one-to-many communications to be broadcast conveniently and economically to the widest possible audience. Companies are able to leverage the creation of content over a mass medium, reduce communication costs, maintain brand identity through a controlled user experience, and in many instances, generate additional revenue streams from the distribution of content to previously untapped audiences and markets. In 2001 our Activate subsidiary webcast approximately 6,000 events.

      We also provide to customers the Loudeye samples services, which is a hosted end-to-end streaming service, delivering high quality music samples to customers in the online music business. Our music samples are streaming files containing selected portions or “samples” of a full music track. For all musical genres except classical and jazz the music samples are generally 30 seconds in duration. For classical and jazz music tracks the music samples are typically 60 seconds in duration. Music samples are used by customers for many purposes, including increasing online music sales, user traffic and customer retention.

      Our catalog includes more than 3 million songs from approximately 220,000 CDs. Formats supported include Microsoft Windows Media and RealAudio formats at multiple bit rates. In addition to hosting the music samples, our subscription solution includes metadata associated with the music samples. For example, this may include front cover art scans of the music title from which the song has been captured.

      In 2001, we served over 620 million song samples to consumers through major online music retailers and websites, such as America Online, BMG Direct, barnesandnoble.com, CDNow and MSN. We offer the service primarily under long-term contracts.

      Encoding Services. To transmit digital media over the Internet and other advanced digital distribution networks, the uncompressed digitized content needs to be encoded into compressed, Internet-compatible digital formats. Encoding large volumes of content in an efficient manner is a complex process that requires highly scalable production technology. In addition, it is at the encoding stage that metadata is at times merged with the encoded file from a centralized database. This adds to the complexity of the encoding process. Since the Internet is still at a formative stage of development, the various encoding formats and technologies continue to conflict and evolve. As a result, content owners many times desire to create multiple copies of their digital content in multiple formats, to support their distribution strategies. Additionally, the encoding process for a particular item or entire libraries may need to be repeated over time to keep pace with the introduction of new formats and the changing preferences of online users, adding to the complexity.

      Our services address these challenges via outsourced management and encoding of our customers’ content. Typical digital media service projects can involve conversion of tens of thousands of music titles or thousands of hours of video content into encoded content of multiple formats and bit rates. Once content has been encoded, we can provide watermarking, encryption and other digital rights management technologies to our customers to protect and manage their content. A file created from the source materials containing specified database and attribute data relating to a particular piece of content can then be linked to that content

10

Table of Contents

      Industry sources estimate there are millions of hours of archived video and audio content worldwide, representing content categories such as entertainment, news, sporting events, corporate communications, historical archives, etc. Much of this video and audio content resides in enormous, discrete library archives that were originally recorded and archived in a wide variety of traditional and sometimes obscure magnetic media formats, all of which degrade over time. The content owner must eventually either restore the content on newer media formats or risk it degrading completely and losing it forever. Recently, some of these archive and content owners have recognized the need to both restore their media assets and adapt them for use under the new distribution channels and business models now available on the Internet. The process of restoring the content in parallel with managing and encoding the files for Web distribution is complex.

      Our VidiPax subsidiary, based in New York, is a leading independent provider of video and audio restoration, preservation and migration services. VidiPax provides industry leading technical expertise in the restoration of older or damaged archives of traditional media. VidiPax’s highly specialized media services are offered from a comprehensive magnetic tape restoration facility, which features rare and one-of-a-kind equipment to address a wide range of audio or video formats, current or obsolete, that require restoration and repair. Some examples of these media formats include 35mm and 16mm film, 2” quad high band and low band, 2” Helical, 1” Types A, B and C, Digital Betacam, Betacam SP,VHS/ SVHS, 8mm/ Hi8, Betamax/ SuperBeta, among many others. VidiPax’s customers include leading broadcast networks, production studios, Fortune 1000 corporations, major libraries, museums and universities. By offering media preservation and restoration capabilities, we provide our customers with support for more formats of source content and a significantly greater ability to prepare older and poor quality and damaged originals prior to the capture and encoding process.

Sales and Marketing

      We sell our services through a combination of direct and indirect sales, with all channels and regional offices managed by a single sales organization. Our sales focus is built on maintaining long-term relationships with clients, and our reseller and referral partners.

      Our Digital Media Services direct sales force targets our services primarily to customers in a diverse range of markets, such as media & entertainment, retail, computer software, business services, financial services, pharmaceutical and manufacturing. We currently have sales presence in Atlanta, Dallas, Los Angeles, New York, San Francisco, Seattle and Toronto. Sales employees are compensated with a salary and commissions based upon business with existing and new clients.

      Our indirect sales objective is to develop alternative distribution channels for the sale of our services. The efforts of our indirect sales group focus on partnering with resellers, such as conferencing and communications providers, to leverage their large and established customer bases. We private label or co-brand our services for these partners depending on their requirements. We also partner with companies to resell our services through their Web sites, co-branded Web sites or to include our services in their product offerings. These indirect sales channels allow us to extend our reach to businesses of all sizes. We offer our reseller partners our services at a discount to our traditional retail pricing model and our referral partners a percentage of revenue pursuant to terms of the agreements.

      Our marketing objectives are to build awareness for our brand among key client segments and to maintain a position as one of the leading full-service digital media service providers. To support these objectives we utilize public relations, trade shows, advertising and direct marketing.

      As of March 19, 2002, we had 43 permanent employees in our sales and marketing organization, substantially all of which were located in the United States.

11

Table of Contents

Customers

      The target customers for our enhanced enterprise communication solutions include large and medium-sized enterprises across a range of industry segments. The target customers for our other digital media services include traditional and Internet-based retailers, media and entertainment companies, including media portals, broadcasters and the major record labels, and large legacy archives including those found at major libraries, universities and enterprises.

      In 2001 we served over 300 customers directly including The Coca Cola Company, Microsoft, XM Satellite Radio, CDNow, Amazon, America Online, Robertson Stephens, Universal Music Group, barnesandnoble.com, the Metropolitan Opera and the New York City Ballet. In 2001 The Coca-Cola Company accounted for 17% of our revenues. In 2000 musicbank and Microsoft accounted for 19% and 10% of our revenues, respectively.

Content Licensing Agreements

      In 2001 we entered into license agreements with Sony Music and EMI Group enabling us to store, deliver and stream music samples and related content to companies authorized to use the music and content. We currently have music content licenses with Universal Music Group, Warner Music Group, BMG Entertainment, Sony Music Group and EMI Group for similar, or in some cases, more expansive digital music distribution activities. We also have entered into similar licensing arrangements with hundreds of independent music label and recording companies.

Operations and Technology

      We manage our Digital Media Services operations from our Seattle facility and our Restoration Services from our New York facility. These operations manage all aspects of content restoration, capture, encoding, pre- and post-production processing, indexing, storage, and distribution to the Internet.

      Our media restoration services are offered from a comprehensive magnetic tape restoration facility in New York, which features rare and one-of-a-kind equipment to address a wide range of audio or video formats, current or obsolete, that require restoration and repair. Some examples of these media formats include 35mm and 16mm film, 2” quad high band and low band, 2” Helical, 1” Types A, B and C, Digital Betacam, Betacam SP,VHS/ SVHS, 8mm/ Hi8, Betamax/ SuperBeta, among many others.

      Our digital media services and infrastructure are robust and highly scalable, featuring significant capacity to manage customer requirements and a flexible and extensible platform to enable tailored solutions and serve a diverse range of market opportunities.

      We have made a significant investment in capabilities to address the major processes supporting the end-to-end management and delivery of digital media, from content capture to content distribution.

      Traditional source media ingest and capture. Capturing digital media involves the conversion of content from traditional analog formats to digital formats while maintaining the original quality. Once captured, the high quality, uncompressed digital content can be archived or used to create compressed, encoded files that are ready for digital distribution. We support virtually all commercially available input formats. Customers deliver their source content to us through a variety of means including satellite transfer, source tapes, compact discs and electronic file transfer. The capture process covers a broad spectrum of media formats and can be automated or managed as a manual system depending on volume and complexity of the project.

      For live content acquisition, we have deployed satellite downlink capacity, extensive frame relay, fiber, automated telephony-to-IP switches, and H.320/ H.322 teleconferencing equipment to supplement our raw ingress bandwidth. These capabilities enable us to support a variety of customer requirements, from low bandwidth to HDTV formats, up to 1.5 gigabit-per-second broadband applications.

      Our facility’s design is modular and scalable to accommodate growth and changes in technology. We can capture hundreds of simultaneous inbound video or audio signals.

12

Table of Contents

      The process of managing digital media is made more complex due to a range of processes necessary to support the creation of metadata files. Metadata, or data and information about the original content, is especially important as companies attempt to sell and distribute content over the Internet. Metadata provides descriptive data to the consumer such as, in the case of music titles, artist information, track level data, title name, cover art and additional information that can be used to consummate commerce transactions or establish marketing relationships associated with the music, such as an online CD sale or an email marketing campaign. In addition, metadata is critical in facilitating the administration of tracking and reporting required in many licensing arrangements with copyright holders.

      We offer customers the ability to record and utilize a wide array of metadata relating to the captured content, such as artist, title, style, universal product code, album and track data and other data that a particular customer may find useful for their particular content. This metadata enables customers to leverage their traditional content over the Internet by allowing them to track and manage their digital media content more efficiently. We perform custom metadata capture projects on a selective basis for customers.

      Digital media storage and access. Our proprietary systems and technology enable the scalable archiving, retrieval and processing of large inventories of digital media. Digitized content is stored on our high capacity storage array systems and accessed via our proprietary, automated, web-based access tools to search, provision and manage such content. Once captured and digitized in uncompressed format, content can be stored on our advanced digital media archive system for later uses.

      Media processing services. Once media is captured we leverage our production expertise, transforming the received media into digitally formatted content for our clients. Content is processed to customer specifications using our proprietary production systems and is then passed through our enhanced monitoring and quality assurance systems before being delivered to customers.

      The production system is a combination of hardware and software, developed by our research and development organization and consisting of advanced digital archive technology, proprietary file management systems, customized user interfaces and a highly distributed encoding system. It is designed to automate the time consuming, error prone steps inherent in a complex management and encoding operation, and to scale for larger volume demands with minimal configuration of additional capture and encoding machines.

      We encode customer content in a parallel, rather than serial, process allowing us to rapidly and cost-effectively deliver encoded content to customers. In addition we have developed proprietary processes that allow us to encode audio and video content across several streaming media and download formats simultaneously, including support for multiple codecs and technologies from third party developers such as Microsoft, RealNetworks, Audible Magic, and others. This format flexibility enables customers to distribute their content to a wide audience and support a variety of digital media strategies. Given that these formats and platforms continue to evolve, the benefits of our multiple platform approach remain applicable as new technologies emerge.

      This encoding architecture creates an automated and highly scalable system. As capacity demands grow, additional computing resources can be added with little or no configuration effort, allowing us to rapidly respond to increased encoding demands.

      The resulting encoded files are checked for quality and then delivered to the customer as a collection of files or automatically routed to our hosting services for direct delivery as a hosted stream, over the Internet.

      Digital media distribution. Digitally formatted content can be delivered to customers via a range of methods from secured file delivery to a fully-hosted streaming or download service published and streamed through our network infrastructure. Our scalable streaming network infrastructure can simultaneously deliver multiple Webcasts to small and large audiences and support our music samples service with high levels of reliability.

      We have invested in a network distribution infrastructure built around a highly-scalable, highly-redundant, “cell-based” network architecture. This approach provides us with redundancy in the event of system failure, scalability for future expansion, and allows us to optimize each cell for the unique needs of

13

Table of Contents

      This network is backed by high-capacity, online storage that uses mirroring and other techniques to provide a high degree of redundancy and scalability. Our hosting and distribution operation includes hundreds of streaming media servers and supports load balancing and other network management techniques that have been optimized for streaming. We can also stream across networks of other providers, if we exceed our capacity or if we are requested to do so.

      Our operations and production personnel are organized into functional teams which include project management, quality control, logistics operations, data measurement, audio capture and encoding, video capture and encoding, and production systems engineering support. In addition, we have a team that supports our network and hosting services. As of March 19, 2002, we had 25 permanent employees in engineering, network services and information technology support and 71 permanent employees in our production areas.

Research and Development

      We are focused on improving our services through research and development. We believe that a strong emphasis on automation and product development are essential to our strategy of continuing to enhance and expand our capabilities.

      Since inception, we have focused our efforts on building efficient, scalable and quality-based capture, archival, management and encoding processes through hardware and software integration and development. Software built to optimize encoding, combined with our expertise learned through our automated encoding process, has provided a platform upon which we build digital media products and services.

      Our team of developers, quality assurance engineers and program managers have significant experience in database development, Java development and Internet software development. In addition, we have recruited senior management with significant experience in the area of digital media distribution, Internet development, streaming media and networking.

      Our core team of developers is focused in the following areas:

	•	digital media services, which focuses on network services, automated capture, archive, encoding and media management; and
	•	application services which includes building a core component layer for digital media applications, our Webcasting applications, our music samples offerings as well as advertisement insertion technology.

      Most of our technology is developed internally. We also purchase and license technology and intellectual property rights.

      As of March 19, 2002, approximately 26 permanent employees were engaged in ongoing research and development work for our services, solutions and applications.

Competition

      The market for digital media services is rapidly evolving and intensely competitive. We expect competition to persist and intensify in the future. Although we do not currently compete against any one entity with respect to all aspects of our services, we do compete with various companies and technologies in regards to specific elements of our services. In addition, we face competition from in-house encoding and webcasting services by potential customers.

      Our primary competitors for our Webcasting services are content distribution networks, such as Akamai and divisions of Williams Communication and Cable & Wireless, and Internet broadcasters, such as Yahoo!Broadcast. Each of these competitors provides services similar to ours and each has a well-established market presence. Certain companies focused on other enhanced communication services such as web collaboration, web conferencing and application demonstration, like WebEx and Raindance, may in the future

14

Table of Contents

      For our other digital media services, there several companies who are providing some level of outsourced digital media services today. We compete with companies such as Sonic Foundry, EncodeThis, Muze, All Music Guide, Liquid Audio, RioPort, HiWire and Lightningcast that provide encoding services, music samples services, music download services, advertising insertion solutions and advertising sales. In addition, well capitalized, diversified digital media technology companies such as Microsoft and Real Networks may in the future compete with us in any of these markets with their own services or applications. In certain markets, such as music distribution, the major recording labels have acquired and invested in digital music service providers such as MP3.com (acquired by Vivendi Universal), PressPlay and MusicNet and developed in-house services which could compete with our digital music services. Traditional radio broadcasters could also develop online music and radio services which could compete with our solutions.

      A significant source of competition includes our potential customers who choose to invest in the resources and equipment to digitally manage, encode and/or host and deliver their media themselves on an in-house basis. In-house service is expected to remain a significant competitor to our services, although we believe that as digital media strategies expand and the scale of infrastructure and applications require to support the strategies increases, companies that currently manage these processes internally will see a significant economic advantage to outsourcing to a third-party expert.

      We believe that the principal competitive factors in our market include:

	•	service functionality, quality and performance;
	•	ease of use, reliability, scalability and security of services;
	•	establishing a significant base of customers and distribution partners;
	•	ability to introduce new services to the market in a timely manner;
	•	customer service and support; and
	•	pricing.

      Although we believe our services compete favorably with respect to each of these factors, the market for our services is new and rapidly evolving. We may not compete successfully against current or future competitors, many of which have substantially more capital, longer operating histories, greater brand recognition, larger customer bases and significantly greater financial, technical and marketing resources than we do. These competitors may also engage in more extensive development of their technologies, adopt more aggressive pricing policies and establish more comprehensive marketing and advertising campaigns than we can. Our competitors may develop products and service offerings that are more sophisticated than our own. For these or other reasons, our competitors’ products and services may achieve greater acceptance in the marketplace than our own, limiting our ability to gain market share and customer loyalty and to generate sufficient revenues to achieve a profitable level of operations.

Proprietary Rights and Intellectual Property

      We rely primarily on a combination of copyrights, trademarks, trade secret laws and contractual obligations with employees and third parties to protect our proprietary rights. We have one issued patent, and we have filed eight U.S. patent applications and twelve international patent applications that claim priority to six previously filed provisional applications. Despite our efforts to protect our proprietary rights, unauthorized parties may copy aspects of our products and obtain and use information that we regard as proprietary. In addition, other parties may breach confidentiality agreements or other protective contracts we have entered into and we may not be able to enforce our rights in the event of these breaches. Furthermore, we expect that

15

Table of Contents

      The streaming media, digital media and software industry is characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement and the violation of other intellectual property rights. As discussed above, at times obtaining the requisite licenses can be difficult for customers, as they must obtain copyright licenses from a variety of rights holders to grant rights to distinct activities related to the delivery of digital media, such as reproduction and performance, which require separate licensing arrangements. In addition, these copyrights may be held by different parties, such as publishers, artists and record labels. The music industry in the United States also is generally regarded as extremely litigious in nature compared to other industries. As a result, in the future we may be engaged in litigation with others in the music industry, including those entities with whom we have ongoing content license arrangements. Although we attempt to avoid infringing known proprietary rights of third parties in our product development efforts, we expect that we may be subject to legal proceedings and claims for alleged infringement by us or our licensees of third party proprietary rights, such as patents, trademarks or copyrights, by us or our licensees from time to time in the ordinary course of business. Any claims relating to the infringement of third party proprietary rights, even if not meritorious, could result in costly litigation, divert management’s attention and resources or require us to enter into royalty or license agreements which are not advantageous to us. In addition, parties making these claims may be able to obtain an injunction, which could prevent us from providing our products or services in the United States or abroad. Any of these results could harm our business. We may increasingly be subject to infringement claims if the number of products and competitors in our industry grow and the functionalities of products overlap.

Government Regulation

      We are not currently subject to direct regulation by any governmental agency other than laws and regulations generally applicable to businesses, although certain U.S. export controls and import controls of other countries, including controls on the use of encryption technologies, may apply to our products. Few existing laws or regulations specifically apply to the Internet. However, it is likely that a number of laws and regulations may be adopted in the United States and other countries with respect to the Internet. These laws may relate to areas such as content issues (such as obscenity, indecency and defamation), encryption concerns, including export contents, copyright and other intellectual property rights, caching of content by server products, electronic authentication or “digital signatures,” personal privacy, advertising, taxation, electronic commerce liability, email, network and information security and the convergence of traditional communication services with Internet communications, including the future availability of broadband transmission capability. Other countries and political organizations are likely to impose or favor more and different regulation than that which has been proposed in the United States, thus furthering the complexity of regulation.

      The adoption of such laws or regulations, and uncertainties associated with their validity and enforcement, may affect our ability to provide our products and services and increase the costs associated with our products and services, and may affect the growth of the Internet. These laws or regulations may therefore harm our business.

      We do not know with certainty how existing laws governing issues such as property ownership, copyright and other intellectual property issues, taxation, illegal or obscene content, retransmission of media and personal privacy and data protection apply to the Internet or to the distribution of music over the Internet. The vast majority of such laws were adopted before the advent of the Internet and related technologies and do not address the unique issues associated with the Internet and related technologies. Most of the laws that relate to the Internet have not yet been interpreted. Changes to or the interpretation of these laws could:

	•	limit the growth of the Internet;
	•	create uncertainty in the marketplace that could reduce demand for our products and services;
	•	increase our cost of doing business;

16

Table of Contents

	•	expose us to significant liabilities associated with content distributed or accessed through our products or services; or
	•	lead to increased product and applications development costs, or otherwise harm our business.

      Specifically with respect to one aspect of copyright law, on October 28, 1998, the Digital Millennium Copyright Act (or “DMCA”) was enacted. The DMCA includes statutory licenses for the performance of sound recordings and for the making of recordings to facilitate transmissions. Under these statutory licenses, depending on our future business activities, we and our customers may be required to pay licensing fees for digital sound recordings we deliver or our customers provide on their web site and through retransmissions of radio broadcasts and/or other audio content. The DMCA does not specify the rate and terms of such licenses, which will be determined either through voluntary inter-industry negotiations or arbitration. Moreover, with respect to digital publishing, sound recording and other music licenses not directly covered by the DMCA, various parties interested in distribution of digital music plan to engage in a proceeding before a tribunal of the United States Copyright Office along with the Recording Industry Association of America during 2001 to determine what, if any, licensee fees should be paid to various rights holders.

      Depending on the rates and terms adopted for the statutory licenses, our business could be harmed both by increasing our own cost of doing business, and by increasing the cost of doing business for our customers.

Employees

      As of March 19, 2002, we had a total of 192 permanent employees, of which 26 were in research and development, 25 were in engineering, network services and information technology support, 43 were in sales and marketing, 71 were in production and 27 were in general and administration. None of our employees are subject to a collective bargaining agreement. We consider our relations with our employees to be good.

Item 2     Properties

      We are headquartered in Seattle, Washington where we lease 62,200 square feet under a lease that expires on August 31, 2005. In addition, we have three other Seattle, Washington locations: a 46,755 square feet under a lease that expires on May 31, 2005, a 6,000 square foot facility under a lease that expires on February 28, 2002, and a 12,697 square foot space under a lease that expires November 15, 2004. We lease an additional facility in New York, New York of approximately 12,200 square feet under a lease that expires May 14, 2005. We also have a 4,050 square foot facility in London, England under a lease that expires on December 21, 2003. Certain of the leased facilities are not currently occupied as a result of the facilities consolidation that took place throughout 2001 and was completed in March 2002.

Item 3     Legal Proceedings

      In connection with the acquisition of DiscoverMusic.com, Inc. we assumed certain liabilities and contingencies, including a patent infringement lawsuit filed on March 31, 2000 by Intouch Group, Inc. (“InTouch”), a California corporation, against Amazon.com, Inc., a Delaware corporation, Liquid Audio, Inc., a Delaware corporation, Listen.com, Inc., a California corporation, Entertaindom LLC, a Delaware corporation, and DiscoverMusic.com, Inc. in case No. C00-1156 pending before the United States District Court for the Northern District of California. The complaint sought that each of the defendant’s use, offer for sale and/or sale of interactive music previewing technology on their respective web sites infringed U.S. patents #5,237,157 (the “157 Patent”) and #5,963,916 (the “916 Patent”) held by Intouch. By its suit, Intouch sought an injunction preventing the defendants from infringing the 157 Patent and 916 Patent, a declaratory judgment that both the 157 Patent and the 916 Patent are valid, and an order requiring each defendant to pay to InTouch up to three times the amount of damages sustained by Intouch, attorneys’ fees and any pre-judgment interest. DiscoverMusic.com, Inc. filed counterclaims against Intouch, seeking declaratory judgment that the patents were not infringed, invalid, and unenforceable. DiscoverMusic.com, Inc. currently operates as Loudeye Sample Services, Inc., our wholly-owned subsidiary.

17

Table of Contents

      On February 6, 2002, we executed an agreement with Intouch to settle all disputes. Pursuant to this agreement, Intouch released all claims against Loudeye Technologies, Loudeye Samples Services, Inc., and DiscoverMusic.com, and granted a license under Intouch’s patents that extends to all customers of Loudeye’s sample services customers to the extent that the customers are operating in connection with Loudeye. Through their attorneys, Loudeye and Intouch have stipulated to a dismissal of their claims in the action.

      Between July 26, 2001 and August 30, 2001, several substantially similar class action complaints were filed in the United States District Court for the Southern District of New York against us and certain of our present and former officers and directors, as well as against certain underwriters who handled our March 15, 2000 initial public offering of common stock. The various complaints were purportedly filed on behalf of a class of persons who purchased our common stock during the time period beginning on March 15, 2000 and ending on December 6, 2000. The complaints together allege violations of the Securities Act of 1933 and the Securities Exchange Act of 1934, primarily based on the allegation that there was undisclosed compensation received by our underwriters in connection with the our initial public offering and the allegation that the underwriters entered into undisclosed arrangements with some investors that were designed to distort and/or inflate the market price for our common stock in the aftermarket following the initial public offering. The allegations set forth in these complaints are substantially similar to those made in class actions filed against over 300 other companies that issued securities within the past three years. These actions have all been consolidated before the same judge for pretrial purposes. No specific amount of damages has been claimed. The individual defendants and we have demanded to be indemnified by the underwriter defendants pursuant to the underwriting agreement entered into at the time of the initial public offering. We believe that the individual defendants and we have meritorious defenses to the claims made in the foregoing complaint and we intend to defend the actions vigorously. However, there can be no assurance that we will be successful on our defenses or in our assertion of indemnification, and an adverse resolution of the lawsuit could have a material adverse affect on our financial position and results of operation in the period in which the lawsuit is resolved. We are not presently able to reasonably estimate potential losses, if any, related to the lawsuit, although we do not believe it will have a material adverse impact on our financial condition or results of operations.

      On May 8, 2001, we filed an arbitration demand with the American Arbitration Association (“AAA”) against Valley Media, Inc. (“Valley”). We alleged that Valley is liable for substantial damages for material breaches of a Services Agreement between the companies dated as of December 17, 1999, in which Valley made representations and warranties and agreed to perform certain obligations to facilitate the creation of a venture to create and market an Internet music clip streaming service. We provided notice of its intent to terminate that agreement by letter dated February 6, 2001, and that termination was effective 30 days thereafter. We have also alleged claims for misrepresentation, fraud, unjust enrichment and promissory estoppel. Valley has filed an answer in which it denies liability, and asserts counterclaims for breach of contract, conversion, and declaratory relief. The arbitration was stayed by Valley’s filing of a petition in bankruptcy, and the company intends to pursue a claim in the bankruptcy proceedings.

Item 4     Submission of Matters to a Vote of Security Holders

      None.

PART II

Item 5     Market for Registrant’s Common Equity and Related Stockholder Matters

      Our common stock has been traded on the Nasdaq National Market under the symbol “LOUD” since our initial public offering in March 2000. There is currently only a limited trading market for the shares of our common stock and accordingly there is no assurance that any quantity of the common stock could be sold at or near reported trading prices.

18

Table of Contents

      The following table sets forth for the periods indicated the high and low closing prices for our common stock. These quotations represent prices between dealers and do not include retail markups, markdowns or commissions and may not necessarily represent actual transactions.

      As of March 12, 2002, there were approximately 537 holders of record of our common stock. Most shares of our common stock are held by brokers and other institutions on behalf of shareholders.

      We have not paid any cash dividends to date and do not intend to pay any cash dividends in the foreseeable future.

Recent Sales of Unregistered Securities

      (a) Recent Sales of Unregistered Securities

      On July 10, 2001, pursuant to the June 2000 acquisition agreement for VidiPax, Inc., we issued 2,189,111 shares of Loudeye Common Stock to the sole stockholder of VidiPax, Inc. and to two consultants in connection with the transaction. The shares issued pursuant to the acquisition were issued in reliance on the exemption from registration provided by Section 4(2) under the Act. The investors made certain representations to us as to investment intent, their receipt of all information they considered necessary or appropriate in deciding whether to purchase the securities, their knowledge and experience in financial or business matters such that they were capable of evaluating the risks and merits of the investment in the securities, and their ability to bear the economic risk of the investment in the securities, that they possessed a sufficient level of financial sophistication and that they received information about us. The shares issued in the transactions were subject to restrictions on transfer absent registration under the Securities Act, and no offers to sell the securities were made by any form of general solicitation or gene