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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

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

Loudeye Corp.

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 þ          No o

      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.     þ

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2)     Yes o          No þ

      The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $11,034,257 as of June 28, 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.

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LOUDEYE CORP.

ANNUAL REPORT ON FORM 10-K

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PART I

Item I     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; 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 for enterprise communication, marketing and entertainment. Our services enable our customers to outsource the management and delivery of audio, video and other visual content over the Internet and on other digital distribution platforms. Our technical infrastructure and proprietary applications comprise an end-to-end solution, including rich media application support, webcasting, web conferencing, 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 2002 we served over 800 customers directly including The Coca Cola Company, Microsoft, CDNow, Amazon, America Online, American Association for Cancer Research, 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 are using 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 and are now integrating digital data as a key component of their online music initiatives for security purposes and to extend the marketing of music online. Additionally, retailers and advertisers have begun to use digital media to aid in the marketing and selling of their products.

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      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. See Footnote 6 to the accompanying Consolidated Financial Statements for financial information about our two segments.

	•	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 our web conferencing services and our 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. Our web conferencing service enables companies to easily facilitate slide presentations and meetings online, when coupled with a conference call. The target customers for these solutions include large and medium-sized enterprises across a range of industry segments. Webcasting services are often sold in arrangements that include a continuing “on-demand” archival component that enables the customer access to its content after an event has been webcast. We recognize revenues as services are rendered, or in agreements with an archive component, the value of the ongoing services is recognized over the term of the arrangement. Web conferencing is sold primarily as a subscription service, providing recurring monthly revenue.

Our other digital media services encompass a variety of related services primarily focused on the digital music market, including digital music and video encoding, metadata licensing, audio fingerprint database generation, hosted music sample services, hosted music download services, hosted video services, online radio solutions, and rich media advertisement insertion. 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.

Sales of these other digital media services are generally made under nonrefundable time and materials or per unit contracts. Under these contracts, we recognize revenues as services are rendered and we have no continuing involvement in the goods and services delivered, which generally is the date the finished media is shipped to the customer.

We sell our music samples service in application service provider arrangements. We are required to host the applications and the customer does not have the ability to have the application hosted by another entity without penalty to the customer. Billings are made based upon volumes of data delivered or minutes of content streamed, and revenue is recognized as the services are delivered.

	•	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. We recognize revenues as services are rendered and we have no continuing involvement in the goods and services delivered, which generally is the date the finished media is shipped to the customer.

      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 reduce complexity and cost of in-house implementations;
	•	High degree of flexibility enables tailored customer solutions;

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	•	Scalable systems and network infrastructure provides 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:

	•	Media processing services. Content is processed to customer specifications via our proprietary encoding and transcoding systems and media restoration capabilities;
	•	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;
	•	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;
	•	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; 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. We served approximately 700 million music samples to our online retail partners in 2002, representing 100 million more samples delivered than in 2001. The total reach and size of Webcasts we produced in 2002 more than doubled compared to 2001. We measure reach and size as the number of times each event is accessed. In addition to total growth doubling, we saw a 105% increase in the reach and size of the average individual event.

      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 additional facilities in New York and Ardsley, New York.

Recent Management Changes and Developments

      In January 2003 we engaged Regent Pacific Management Corporation (“Regent Pacific”) to provide certain management consulting and advisory services. On February 3, 2003, our former Chairman and Chief Executive Officer, John T. Baker IV, resigned from the company. Simultaneous with Mr. Baker’s resignation, we entered into a new agreement with Regent Pacific, expanding its role with the Company. In connection with that agreement, we appointed Philip J. Gioia, a principal of Regent Pacific, to serve as our President and Chief Executive Officer and agreed to have selected Regent Pacific principals, including Mr. Gioia, serve as part of the Loudeye executive management team. Additionally, Mr. Gary J. Sbona, the chairman and Chief Executive Officer of Regent Pacific, was elected to the board of directors of Loudeye and Charles P. Waite, Jr., a member of Loudeye’s board of directors and a partner of OVP Venture Partners, was elected as Chairman.

      On March 11, 2003, the engagement of Regent Pacific, and the involvement of Regent Pacific principals as part of the Company’s executive management team concluded. As a result, Mr. Gioia resigned as President and Chief Executive Officer of the Company, and Mr. Sbona resigned from his seat on the Company’s board of directors. On March 11, 2003, our board of directors appointed Jeffrey M. Cavins, who had been our Senior Vice President of Sales, as our President and Chief Executive Officer, and elected him to the Company’s

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      On March 14, 2003 we announced our intention to restructure to reduce costs and to focus our efforts on our core competencies on digital media services where we anticipate customer growth and higher gross margins. As part of this strategic restructuring we announced a reduction in staff affecting approximately 35% of our workforce. This reduction in force primarily affected employees in all departments at our headquarters in Seattle, Washington.

      The Company entered into Employment Agreements dated as of April 1, 2003 with Jeffrey M. Cavins, President and Chief Executive Officer of the Company, and Jerold J. Goade, Jr., the Vice President and Chief Financial Officer of the Company. In addition, the Company entered into a Consulting Agreement dated as of April 1, 2003 with Anthony J. Bay, the Chairman of the Company.

Industry Background

      Digital media continues to grow as a pervasive tool for communications, online media promotions and the distribution of content, particularly in the media/entertainment and corporate sectors. This growth is driven in large part by an increase in broadband adoption and significant improvements in streaming technologies capable of delivering high quality content in smaller file sizes. A critical trend in these technology and streaming format enhancements is a marked increase in ease of use and effectiveness of streaming media, including, in some cases, instant-on access to streaming content without buffering.

      At the same time, content owners such as major media companies, film studios and record labels are providing more content in a digital environment to capitalize on these opportunities. In corporations, the recent passing of certain legislative acts, such as Sarbanes Oxley, are stiffening regulatory requirements for information dissemination, creating a growing interest in Webcasting and enterprise streaming to cost effectively reach a worldwide audience in a timely manner.

      Consumer Broadband Penetration. According to a 2003 study of digital consumer trends by Arbitron and Edison Media Research, more than 103 million Americans over the age of 12 have experienced Internet audio or video broadcasts. The study concluded that 75 percent of Americans have Net access versus 55 percent three years ago and that in the last two years home broadband penetration has leaped from 7 percent to 18 percent.

      Media and Entertainment. The primary concern among media and entertainment companies relates to finding a solution for driving the sale of legitimate music, mainly CDs and DVDs, in light of the continued use of illegal file sharing software. Music samples have been a key driver of CD sales in the past for online retailers. These same companies can benefit from the growing interest among film studios to use online DVD samples in the same way. A recent study conducted by comScore Networks found that movies and video were among the top ten fastest growing non-travel e-commerce categories, attracting $205 million in sales between November 1, 2002 to December 20, 2002, a 45% increase over the same period one year ago. Arbitron and Edison Media Research noted in 2002 that streaming media users bought more than 1.5 times the number of compact discs in the past year than the average American and 62 percent of online video-watchers have viewed movie trailers or previews on the Web. Additionally, digital media samples for both CDs and DVDs are moving to physical in-store kiosks where consumers can scan an item and view related material to help drive the purchase.

      New Digital Media Business Models. The Internet provides a platform for a next generation of digital music business models focused on the direct digital distribution of content to users on a subscription basis. These services are endorsed, and sometimes financially backed, by the major labels and represent additional opportunities for digital media services on a large scale. Key to the growth and consumer adoption of these models is the ability to offer a large catalog of high quality content with access to new releases. Subscription models are also being developed to support the distribution of films online. In 2002, the Cable & Telecommunications Association for Marketing, concluded that 27 percent of Americans are likely to pay a

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      Enterprise Communications. Fortune 1000 companies are leveraging streaming media and Webcasting technologies across all areas and departments of their business to increase the effectiveness, cost efficiency and reach of their communications. According to The National Investor Relations Institute in 2002, the use of streaming media for earnings Webcasts among publicly traded companies has reached more than 90%. With travel spending declining, enterprises are turning to Webcasting solutions for maintaining frequent and effective communications with global workforces for a number of critical business initiatives. Eighty-six percent of corporate marketers surveyed by media research firm Interactive Media Strategies say they have viewed online Webcasts with 60% of all respondents saying they are using online multimedia at work more frequently than a year ago. According to The Yankee Group, streaming audio and video applications for employee education and salesforce training, along with corporate communications, investor relations, corporate events, conferences, and trade shows will experience growth of greater than 100% over the next year. Gartner predicts that by 2006, 80% of Global 2000 enterprises will be supporting live video and video-on-demand to the desktop.

      Challenges in Digital Media Distribution. In both the media/entertainment and corporate sectors of the streaming market, companies can be challenged to develop the technical infrastructure, delivery systems, experienced staff and digital asset base to effectively deploy streaming media in-house. A 2002 Jupiter research report concluded, “by working with end-to-end outsourced service providers, companies can shift the burden of amortizing capital expenditures. This frees up resources so companies can focus on developing content and programming (core competencies) rather than on optimizing distribution.” Enterprise Webcasting projects frequently require multiple forms of signal ingress, major content hosting capabilities and complex distribution systems to deliver high bit rate, rich media to a worldwide audience. Assembling the resources to deploy such a solution would be costly and complicated to execute internally for a company. Media and entertainment companies face similar challenges in delivering high quality content to millions of users while trying to maintain a music catalog and/or up-to-date film content in the latest formats.

      In order for companies to manage and distribute digital media, they must develop internally 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

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The Loudeye Solution

      We are a global leader in digital media services and Webcasting technologies used by some of the world’s leading companies for marketing, entertainment and communications. Our services enable our customers to outsource the management and delivery of audio, video and other visual content via 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 and proprietary applications provide a complete, outsourced solution for the management and delivery of digital media, 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.

      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 and Web conferencing applications and services, coupled with our scalable network and production infrastructure technologies, provide a simple, cost-effective way for corporations to communicate with any size online audience, large or small. Using our services, enterprises can offer their target audience’s 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 the online marketing initiatives of our customers through our other digital media services including our leading music samples services, online radio services, advertisement insertion solutions, and music download services. Finally we provide outsourced services to support the management and distribution of our customers’ digital media catalogs, including scalable encoding and delivery services.

      End-to-end outsourced solutions 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. We deliver high-quality and reliable services at a lower cost than the development and maintenance of comparable internal solutions for our customers, enabling them to leverage our significant investments in these processes and avoid purchasing capital equipment, developing system expertise, training personnel and managing evolving technology platforms. In addition, we have obtained copyright licenses in certain offerings within our digital music services, which are transferable to our customers and enable them to avoid the cost and effort to negotiate and obtain such licenses for themselves.

      High degree of flexibility enables tailored customer solutions. Because our customers require flexibility in the manner in which their content is captured, as well as in the formats and manner that 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

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      Scalable systems and network infrastructure 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 through 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 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 over 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 delivery of digital media, such as reproduction and performance, which may require separate licensing arrangements. In addition, these copyrights may be held by different parties such as publishers, artists and record labels. We have developed relationships and signed content licensing agreements with all five the major music companies, Universal Music, Sony Music Group, Warner Music Group, EMI Group and BMG Entertainment, and hundreds of independent record labels, and developed working relationships with other music companies.

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 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.

      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 audience’s access to Webcasts of a variety of corporate events, such as product launches, investor earnings calls, conferences and distance learning seminars. Our web conferencing service enables companies to easily facilitate small slide presentation meetings online. 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. 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.

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      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 allows the client to implement new business models or expand current initiatives. These applications are deployed on an application services provider (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.

      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, and our digital download platform includes rights management clearing. These applications can enable customers to promote, manage, and monetize their 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 way for corporations to communicate with large, online groups. We provide our services to large and medium sized enterprises as well as traditional media and broadcast companies.

      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. The total reach and size of Webcasts we produced in 2002 more than doubled compared to 2001.

      We also provide customers with access to 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.

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      Our catalog includes more than 3.3 million songs from approximately 300,000 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 2002, we served over 700 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 as part of the overall encoding process. We also provide project analysis, as well as consulting, integration and custom application development.

      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.

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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 Seattle, Los Angeles, Washington DC and New York. 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 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 14, 2003 we had 13 permanent employees in our sales and marketing organization, all of which were located in the United States.

Customers

      The target customers for our Webcasting and Web conferencing 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 & 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 2002 we served over 800 customers directly including The Coca Cola Company, Microsoft, BeMusic, Inc., Amazon, America Online, Yahoo!, Inc., Siebel Systems, Inc., barnesandnoble.com, and the Metropolitan Opera. In 2002, The Coca-Cola Company and Microsoft accounted for 13% and 10% of our revenues, respectively. In 2001, The Coca-Cola Company accounted for 17% of our revenues.

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 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 and Washington DC facilities 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

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      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.

      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.

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      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 each type of client. Depending on the streaming format and the bit rate, we are able to currently stream thousands of simultaneous outbound streams. We can expand our capacity by adding additional servers within cells.

      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 14, 2003 we had 12 permanent employees in engineering, network services and information technology support and 57 permanent employees in our production and research and development 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 has 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.

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      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 include 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 14, 2003, approximately 57 permanent employees were engaged in production and ongoing research and development work for our services, solutions and applications. Of these, seven employees were dedicated to research and development.

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. Companies focused on other enhanced communication services such as web collaboration, web conferencing and application demonstration, such as WebEx and Raindance, compete with our web conference service, Loudeye Express. In addition, some of our current partners, telecom carriers, teleconference companies, or other infrastructure companies have, or in the future may choose to, enter our market. We compete with providers of traditional communications technologies such as teleconferencing and videoconferencing as well as applications software and tools companies, such as Centra Software, Lotus (SameTime), Microsoft (NetMeeting and Placeware).

      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, 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 required to support business 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;

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	•	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 we will increase our international operations in the future and the laws of many foreign countries do not protect our intellectual property rights to the same extent as the laws of the United States.

      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 which 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

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      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;
	•	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 14, 2003, we had a total of 92 permanent employees, of which 50 were in production, 7 were in research and development, 13 were in sales and marketing, 12 were in engineering, network services and information technology support, and 10 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

      The Company, directly or through certain or its subsidiaries, has an interest is several real property leases and conducts its business from several of these locations. In an effort to streamline its operations and to

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	1.     1130 Rainier Avenue, Seattle, WA. The Company’s principal operations are conducted from this facility through a sublease with the Company’s Loudeye Enterprise Communications, Inc. subsidiary. In March 2003, we reduced the space we occupy, term of the lease and rental payments for the premises from 62,200 square feet at a base rent of $1,292,140 per annum ($107,678/ month) with a term expiring on November 30, 2005 to approximately 17,010 square feet at a base rent of $350,000 per annum for the remainder of the term which has been shortened to June 30, 2003. We have the option of extending the term for two 3-month periods at a base rent of $100,000 and pre-paid utility expenses of $60,000 for each 3-month extension. As consideration for the reduction of space and lease term, we have agreed to allow the Landlord to retain our security deposit in the amount of $218,500 and liquidate a letter of credit in the amount of $19,623.
	2.     450 West 34th Street, 4th Floor, New York, NY. The Company’s Vidipax subsidiary leases approximately 12,200 square feet of space at the premises at an annual rental rate of $360,000 ($30,000/ month) for a term expiring on May 14, 2005.
	3.     1919 M Street, Washington, D.C. We recently reduced the space we occupy at the premises to 2,316 square feet. The annual base rent is currently $78,631 ($6,553/ month) with a lease term that expires on March 31, 2004.
	4.     6464 Sunset Blvd., Hollywood, CA. We lease approximately 3,000 square feet at the premises at an annual base rent of $41,706 ($3,475/ month) with a lease term that expires on December 31, 2003.
	5.     111 West 19th Street, New York, NY. A subsidiary of the Company, Vidipax, Inc., has recently entered in a lease for the entire seventh floor at the premises with a lease expiration date of January 31, 2013. The lease is currently in a free rent period with lease payments to begin on June 1, 2003 at a rate of $423,200 per annum ($35,267/ month).
	6.     414 Olive Way, Seattle, WA. We currently lease 39,098 square feet of space at the Times Square Building, of which 2,555 square feet of space is subleased to an unrelated entity. The current annual rent is $847,932 ($70,661/ month) with the lease term expiring May 31, 2005. We have surrendered the leased premises and are negotiating a termination agreement with the landlord. We can not assure you that we will be successful in reaching agreement on the terms of such termination agreement. Estimated lease payments and costs associated with this vacated facility have been included in accrued special charges at December 31, 2002.
	7.     450 Saw Mill River Road, Ardsley, NY. We are in the process of terminating the leasehold interest of our TenTV subsidiary. In that connection, TenTV has surrendered all of the approximately 17,333 square feet of space leased through June 1, 2004. The current rent for the premises is $230,270 per annum ($19,189/ month). We are presently negotiating a termination agreement that we believe will result in a substantial reduction to future obligations under that lease. We can not assure you that we will be successful in reaching agreement on the terms of such termination agreement. Estimated lease payments and costs associated with this vacated facility have been included in accrued special charges at December 31, 2002.
	8.     1904 Fourth Avenue, Seattle, WA. We lease approximately 12,697 square feet at the premises at an annual base rent of $342,819 ($28,568/ month). The term of the lease expires on November 14, 2004. We are presently negotiating a termination agreement that we believe will result in a substantial reduction to future obligation under that lease. We cannot assure you that we will be successful in reaching agreement on the terms of such agreement. Estimated lease payments and costs associated with this vacated facility have been included in accrued special charges at December 31, 2002.

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	9.     1424 Second Street, Santa Monica, CA. We lease approximately 4,632 square feet at the premises at an annual base rent of $200,288 ($16,691/ month). We sublease the entire premises to a tenant at the full base rent amount. The term of the lease and sublease expires on December 31, 2004.

Item 3     Legal Proceedings

      Between July 26, 2001 and August 30, 2001, four substantially similar class action complaints were filed in the Untied States District Court for the Southern District of New York against the Company and certain of its former officers and directors, as well as against certain underwriters who handled its March 15, 2000 initial public offering of common stock. The various complaints were purportedly filed on behalf of a class of persons who purchased the Company’s 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 the Company’s underwriters in connection with its 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 the Company’s 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 four 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 the Company have demanded to be indemnified by the underwriter defendants pursuant to the underwriting agreement entered into at the time of the initial public offering. Presently, all claims against the former officers have been withdrawn without prejudice. The Company, along with the many other issuer defendants, moved to dismiss the claims in the complaint. By decision dated February 19, 2003 the court denied the Company’s motion. We believe that 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.

      On or about January 8, 2003 a company known as Dominion Venture Finance, L.L.C. commenced an action against the Company and “John Doe” defendants in the Superior Court of the State of California, County of San Francisco. In its complaint, plaintiff alleges that pursuant to a loan and security agreement and a master lease agreement (the liabilities for which agreement, plaintiff alleges, were acquired by the Company when the Company merged with an entity known as DiscoverMusic.com, Inc.) the Company failed to make certain required payments to plaintiff. Plaintiff asserts causes of action of breach of loan and security agreement, claim and delivery, money lent, breach of master lease agreement and book account. Plaintiff seeks relief in the form of money damages, interest, attorneys’ fees and costs. The Company has filed an answer to the complaint denying the material allegations. We believe that we have meritorious defenses to the claims made in the foregoing complaint and we intend to defend the action vigorously. However, there can be no assurance that we will be successful on our defenses.

      None.

PART II

      Our common stock has been traded on the Nasdaq National Market under the symbol “LOUD” since our initial public offering in March 2000 through July 16, 2002, after which we have been traded on the Nasdaq SmallCap Market. Since July 30, 2001, our common stock has failed to maintain a minimum bid price of $1.00 per share for at least 10 consecutive days, which caused our stock price to fail to meet one of the minimum standards required by the Nasdaq Stock Market for continued listing as a Nasdaq National Market

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      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.

      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.